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Strategic Database Development in the

Marketing Planning Process

2 Keri Lee works for Diversified Software Inc. (DSI), a company that develops and markets a wide range of graphics software. When DSI was established in the late 1970s, they had few customers and served the b-to-b market exclusively. Originally, the company did not have a customer data- base. A sole salesperson recorded all information about customers on paper.

As sales expanded and more salespeople were hired, the company decided that it was necessary to have a more structured system of keeping track of customers. Because it was possible for several salespeople to contact a single customer or for the customer to contact more than one salesperson, a database of customer contacts was developed. For example, an internal salesperson might call a purchasing agent in a company to check on a reorder, and an external salesperson might demonstrate a new product to the information systems manager in the same company. Having all customer contacts recorded in the database allowed DSI to understand their customers’ needs better and determine who were their best customers.

When Keri joined the company in 1997, the database had been upgraded. Keri was given a notebook computer that was configured to access the database on the company’s network by modem. Keri is in charge of several accounts, and every time she contacts a customer, she records the time, date, and comments into the database. She is also able to check purchase history, any promotions the company received, and the current status of orders. In the database, Keri can enter personal information about her customers (e.g., birthdays, hobbies, names of spouses and children, favorite restaurants). Keri found that for some customers, developing more personalized relationships is important for maintaining a good business relationship. Keri can also enter a future date to contact a particular customer. This helps her to keep current with all her customers and stay ahead of the competition. Keri finds the database a valuable sales tool,

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Drozdenko, Ronald G., and Perry D. Drake. Optimal Database Marketing : Strategy, Development, and Data Mining, SAGE Publications, 2002. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nyulibrary-ebooks/detail.action?docID=996727. Created from nyulibrary-ebooks on 2020-06-01 16:11:38.

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because she can have full account information whenever she contacts a customer or whenever a customer contacts her.

Although there is an expense associated with the development and mainten- ance of the database, DSI management has seen clear benefits. Since the database has been implemented, customer retention has increased by 30%. Because mailings and other marketing programs can be tested and tracked for effectiveness, the response to these marketing efforts has improved by 15%. Overall, profitability has increased by about 18% since the imple- mentation of the database, and management recovered its investment after about 2 years.

Before implementing the database, DSI embarked on strategic and marketing planning. The decision to upgrade and invest in new database technologies was based on a comprehensive analysis of internal and external factors. These factors included potential target markets, competition, company resources, and the current technological advancements. DSI’s upper management was aware that developing new database technology was not an end in itself but a means to achieve organizational objectives. The database would be used to implement and monitor specific marketing programs.

This chapter focuses on the strategic considerations related to marketingdatabase development. We consider the critical factors when evaluating the potential utility of databases in achieving a range of objectives within an organization. We examine some basic examples of marketing databases and compare customer databases with other types of databases used by marketers. Strategic marketing planning is a process that is intended to help the organization achieve its objectives. We examine the need for strategic planning, provide alternative marketing strategies, and outline the common elements of the marketing planning process, emphasizing database applica- tions.

In the last chapter, we provided a general definition of a marketing database. We said it is a file containing information about customers or potential customers that enhances marketing functions. The goal in establishing the database is to allow customer information to be accessed and manipulated rapidly and accurately in order to meet customer needs and organizational objectives. We have to keep in mind that although a database may be large and use sophisticated technology, it is only valuable to the organization if it helps achieve objectives, like increasing profits. Before we discuss complex databases, let’s look at a simple one that accomplishes organizational objectives.

Think of a food vendor who serves busy businesspeople in a city’s commerce area. Although the vendor may serve dozens of customers on a given day, he gets to know many of them by name because they frequent

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his small stand. For example, when a particular customer walks up to his stand, he knows her first name, how she takes her coffee, and how much cream cheese to put on her raisin bagel.

The food vendor has developed a “mental” customer database. Retaining this information helps him serve his customers more personally and quickly so that they can get to work on time. These customers are more likely to be satisfied and consequently more likely to return to his stand in the future rather than going to his competitors. The vendor may adjust his product assortment based on sales trends he notes. People may be buying more bagels and less Danish pastry, or he may notice more people requesting decaffeinated coffee. He may reward his regular customers by occasionally giving them a free cup of coffee with a sandwich order. He realizes that the success of his business is dependent on repeat customers. He listens to his customers in order to improve his business and notes their characteristics such as age, gender, ethnicity, and occupation. He may also segment cus- tomers by when they purchase (e.g., morning, noon, evening) or the types of things they purchase. To increase business in the morning, he may add breakfast sandwiches to compete with a nearby chain restaurant. He’ll keep a mental note of the success of these new offerings.

Problems arise with a mental database when the customer base increases. With thousands of customers and many customer characteristics, it becomes impossible to hold their characteristics in memory. Paper databases have been used for many years to record customer characteristics. A hairstylist may record customer names, addresses, phone numbers, appointment dates, coloring and treatment formulations, and hair care product purchases on index cards or a Rolodex. Again, this information helps the organization serve customers better. As the hair stylist’s business grows and she hires other stylists, she may decide to store this information in a computer database rather than use paper records. Database software has been developed for specialized businesses like hair stylists to help them function more efficiently and effectively. Remember that the fundamental rationale for developing the database is to help to achieve organizational objectives. If the database does not accomplish this or hampers interaction with customers, as might occur with some small businesses, then there is no reason to implement it.

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_________________________________ Computerized Databases

Although mental or paper databases may work adequately for some organ- izations, our objective is to explore computerized databases and how they may be used to achieve organizational objectives. In a simple form, a com- puterized customer database can be visualized as spreadsheets, with each row representing the record of one customer. The columns represent

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24 OPTIMAL DATABASE MARKETING

customer attributes or characteristics (often referred to as fields). Exhibit 2.1 shows a portion of a hypothetical database for a shoe retailer.

What other types of information might be valuable to the shoe retailer? Of course, we would need complete address information so the customers could be contacted. In addition to recording the last purchase, it would be valuable to have a more comprehensive record of purchase history. This would help us determine the best customers over a number of years. If we were sending a catalog or were engaged in Internet commerce, it would be valuable to link specific purchases to these marketing programs in order to evaluate effect- iveness. Knowing demographic (e.g., age, gender, ethnicity, occupation) and psychographic (e.g., activities, interests, and opinions) characteristics of customers may help in developing new products and finding lists of potential customers with similar characteristics. As you can see, the more relevant infor- mation we can obtain about customers, the better we can understand who they are and predict what they might purchase.

NAME ADDRESS LAST PURCHASE AMOUNT

P. James 4 Oak Lane Pappagallo-162 129.50

K. Lang 7 Maple St. Easy Spirit-200 68.90

T. Clark 3 Pine Drive MootsieTootsie-87 48.88

Exhibit 2.1 Hypothetical Database for a Retailer

Customer Databases Versus Other Marketing Databases ______ In this book, we are primarily concerned with databases that contain infor- mation about individual customers. That is, the customer database allows us to reach customers directly. Prospecting databases also contain data on individuals, but these individuals are not customers. When individuals from the prospecting database respond to an offer, their names are moved to the customer database.

Marketers also develop databases that contain summarized data such as sales by product line, territory, and salesperson. Internet marketers routinely collect data on the number of visitors to their Web site, most popular pages on the site, and other aggregate data. Although these databases are also useful for marketing planning, they do not allow us to analyze customers and develop systematic direct marketing programs to the same degree as customer databases. Knowing that 3,250 customers purchased shoes during

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a sale is not as valuable as having the names, contact information, and specific purchases of each of these customers. With the latter data, these customers could be contacted for a number of marketing programs. These programs could range from a simple thank-you note to help bond the relationship, to alerting these customers of the arrival of new products.

Strategic Database Development 25

___________________________ The Need for Strategic Planning Marketing database development should start with some type of strategic plan. The strategic plan provides a guide for database development and defines how it will assist in achieving organizational objectives in the near and distant future.

Nonetheless, there has been discussion in recent years on the value of strategic planning in a rapidly changing marketplace. Some of the criticisms of developing a formal strategic plan revolve around the issue of lack of flexibility and timeliness. That is, if an organization is committed to following a plan, opportunities might be missed. This is a particularly cogent argument for entrepreneurs. However, even advocates of eliminating the formal strategic plan still believe in the importance of “strategic thinking.” Carl Long (2000), for example, includes many of the elements of strategic planning (e.g., know- ledge of customers, capabilities, competitors, markets) as requirements for strategic thinking for entrepreneurs, even though he doubts the usefulness of a formal plan. Although adopting a strategic thinking rather than a strategic planning approach may work for entrepreneurs and small businesses, a lack of a formal plan has disadvantages for larger organizations. The plan helps communicate the organization’s direction to employees. A more formalized plan provides the following advantages:

♦ Points to potential and existing problems, opportunities, threats in the market environment

♦ Defines organizational strengths and weakness ♦ Plots the acquisition and use of resources ♦ Details methods to obtain goals and objectives ♦ Assists in implementation of strategies ♦ Regulates growth ♦ Establishes roles and functions of departments and individuals ♦ Makes better use of resources ♦ Establishes tasks and timing ♦ Helps achieve personal goals of individual employees ♦ Stimulates thinking and communication within the organization

The last advantage of a formal planning process should not be over- looked. When the plan is written and distributed, the organization can take

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26 OPTIMAL DATABASE MARKETING

advantage of the valuable input of its employees. Indeed, a good strategic planning process incorporates the input of employees at several levels within the organizations. Furthermore, a strategic plan should not be a static document followed without revision or question. Rather, periodic review of both the marketing environment and marketing programs is essential. Organizations in rapidly changing market environments need to have more frequent reviews of their plans. Michael Porter, arguably the leading authority on strategy management, states that many successful companies in the “New Economy” do have a strategic focus. Porter says that these companies have a “clear sense of what they’re trying to do and of how to do it” (Surowiecki, 1999, p. 135). Porter (2001) argues that com- panies in the New Economy actually have more of a need for a strategy that will distinguish them from competitors. The Internet tends to weaken prof- itability when low pricing policies and competitive emulation are pursued. Strategic planning allows competitive strengths such as unique products, superior product knowledge, and superlative service to be realized.

Developing a Systematic Plan for Using Marketing Databases ______________________________

Now that we have covered basic database and strategic planning concepts, our next step is to examine how the organization might evaluate the need for the database and develop a plan for implementation. Planning occurs at several levels within the organization and originates from the organiza- tion’s strategic plan. This corporate strategic plan sets the general direction for the organization, and all other planning should be consistent with this corporate plan.

Corporate strategic plans commonly include a mission statement, a market analysis, overall objectives, and general strategies. Exhibit 2.2 shows the levels of planning that might occur within a large organization.

Note that not all organizations will have divisional planning. Divisional planning may apply to organizations that are operating in more than one market. One example is General Electric, which is in a wide range of markets, including consumer appliances, financial services, and jet engines. Functional planning refers to plans developed for the areas of the business such as marketing, finance, operations, human resources, and product development. In our discussion, we focus on marketing, which may also develop plans at the operating levels of advertising, product development, research, distribution, sales, and so on. Finally, some organizations develop plans for individuals or teams.

It is important for a marketing manager to keep the levels of planning in perspective throughout the planning process. To get upper management to buy into the plan, marketing personnel need to clearly express how their

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We examine the marketing planning process as it applies to decision criteria for databases. At the beginning of the marketing planning process, marketing managers must first review the corporate strategic plan to determine if the development of a marketing database is consistent with organizational object- ives and resources. Alternatively, in the process of developing the annual mar- keting plan, the marketing manager may determine that a customer database might help achieve objectives. The follow types of questions may be addressed:

♦ Does the company have the human and financial resources to support a database system?

♦ Are the financial objectives of the organization compatible with developing a customer database that will take 5 years before a return on investment is realized?

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Corporate

Divisional

Functional (Marketing)

Operating Level (Sales, Advertising, Distribution, etc.)

Individual Personnel

Exhibit 2.2 Levels of Organizational Planning

The Marketing Planning _______________________ Process and Database Implementation

proposed marketing plan helps the organization achieve its primary objectives. This management buy-in is particularly important when the plan includes the development of a marketing database, because the resources dedicated to such a project are often substantial.

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♦ Is the development of a customer database consistent with the corpor- ate strategy? For example, the development of an extensive database to increase penetration in current markets may not be totally consistent with a corporate strategy of diversification into new markets with new products.

If database development is found to be consistent with the corporate plan, marketing management will proceed through the marketing planning steps. We should emphasize that marketing planning is a continual process that requires constant review. It is not a static document but rather an interactive tool for enhancing the marketing process. Following is a common basic model used in marketing planning:

♦ Perform situational analysis ♦ Specify objectives ♦ Develop strategies ♦ Implement marketing programs (tactics) ♦ Monitor and control

For organizations that are using or are planning to use direct distribution or promotion systems, the use of some sort of database system is a foregone conclusion. For example, marketers who promote directly to customers via mail, phone, TV, catalogs, or the Internet need to have a database to enter and fulfill orders. Therefore, the question for these organizations is not whether a database system should be employed but rather whether to define the database system according to organizational and customer needs. Car companies often use mailings to bring customers to dealerships. They can adopt a limited or outsourced database system to implement this mail program. On the other hand, a clothing cataloger or Internet drugstore that does not have physical retail locations is highly dependent on the database system, as it is the primary means to maintain contact with customers.

As companies integrate across multiple promotion and distribution channels, developing strategic database systems will become more essential. Organizations will have to assess the return for developing resource-intensive database technologies that allow customers to access the company from multiple channels. We discuss integrated database systems in Chapter 15.

Situational Analysis

An analysis of the marketing situation is the starting point for marketing planning. Before developing a marketing plan for a new organization or making changes to an existing marketing plan, it is necessary to carefully examine all market factors relevant to the organization. These might include

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♦ General environmental factors: global, cultural, economic, legal, political, social, demographic, technological, and so on

♦ Internal resources: technology, human resources, marketing, produc- tion, etc.

♦ Present and future markets: evolving and established segments ♦ Target market characteristics: demographics, psychographics, pur-

chase patterns ♦ Competitors’ characteristics: direct and indirect

The strengths, weaknesses, opportunities, and threats of the organization are evaluated within the context of the environment. For example, an organization may be aligned to expand in a existing market (strength) but currently may not have the resources to remain competitive in another market (weakness). A new technology developed by a competitor may pose a threat to an organization, whereas an organization’s rapid product development capabilities provide an opportunity to move quickly into a new market niche.

If database development is a consideration, we can begin to access the feasibility of developing the database within organizational objectives by examining each variable of the situational analysis. For example, growing competition for a product at the retail level may be affecting a company’s growth. An analysis of the competition and the purchasing habits of the target market may point to an opportunity for using direct channels of promotion and distribution, which implies that a database has to be developed. Then we examine if the organization has the capabilities to develop the database with current technology and personnel. In some cases, the organization uses external contractors to develop and maintain the database, which may reduce initial financial risk, but the trade-off is some loss of control.

Establishing Marketing Objectives

After performing a situational analysis, an organization has enough infor- mation to establish its marketing objectives. General marketing objectives can reflect sales revenues, profitability, gross margins, price targets, and marketing share. Examples of marketing objectives might be to increase sales volume by 10% in the next year or increase net profits to 30% by 2005. Quantification of objectives is necessary for evaluation and control. Saying that your objective is to increase sales is inadequate. This objective could be satisfied with a 1% increase over 10 years. Most organizations would consider that accomplishment dismal.

The advantage of implementing databases is that they allow clear, quanti- tative, and continual tracking of objectives. Tracking sales through a com- plex distribution system with many retailers can be difficult. With database

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marketing, individual sales can be recorded immediately, and the effective- ness of marketing programs relative to objectives can be tracked continually.

Strategy Development

Strategy is the longer-term direction for interacting with markets to achieve marketing objectives. It involves developing products to meet customer needs and positioning products (i.e., communicating about benefits) to target segments. The situational analysis provides a guide to strategy development. Market segments, potential targets, competition, internal resources, and so on need to be considered when developing strategies. Strategy development is complex, and we do not examine it here in detail. But to show the importance of relating database development to marketing strategy, we do examine some general strategies in marketing. They include market penetration, market development, product development, and diversification. These strategies are shown in the grid in Exhibit 2.3 developed by Ansoff (1988, p. 109). Examples of the use of databases in these strategies follow.

Market Penetration Strategy. Involves increasing product use for existing customers or targeting potential customers who possess characteristics similar to those of existing customers. Products are not modified with market penetration strategy. Customer relationship programs fit into this strategy category. By developing long-term relationships with existing customers, the organization is attempting to increase repeat purchases.

30 OPTIMAL DATABASE MARKETING

Existing Products

Market Penetration

Market Development

New Products

Product Development

Diversification

Existing Markets

New Markets

Exhibit 2.3 Product/Market Strategy Grid

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A database may assist in reaching existing customers more efficiently and effectively. Promotions can be more specifically targeted to existing customers based on a better understanding of their potential needs.

Furthermore, the database can be analyzed to specify the critical charac- teristics of existing customers in order to find new ones. For example, many publishers of magazines develop profiles of their customers based on demographic, purchase history, and psychographic data to determine what types of mailing lists to rent. A substantial portion of this book is dedicated to examining the analysis process in detail.

Market Development Strategy. Involves offering the organization’s existing products to new markets. For example, a producer of an industrial cleaner that primarily sells to manufacturing organizations could acquire lists of customers in other industries such as health care or hospitality. The list could be the foundation for a customer database. When these potential cus- tomers respond to the company’s offer, additional information is recorded in the database. Here is another example of a market development strategy: A company that sells clothing domestically primarily through brick and mortar retailers could acquire a list of customers in another country and establish database marketing techniques. This strategy would reduce the risk of developing traditional distribution channels in a foreign country.

Product Development Strategy. Involves developing new products for exist- ing markets. A company that markets educational books for children and then develops educational software for those same customers is adopting a product development strategy. The database can help in product development through the use of systematic analysis and testing paradigms. Discovering that their current customers have certain hobbies or are involved in certain activities may provide clues for product development. Techniques for expand- ing our knowledge of current customers, called data enhancement, are discussed in Chapter 4.

Furthermore, the database allows us to use valuable testing methods. For example, new products can be evaluated through “hypothetical” direct mail offerings, or dry testing and does not require the investment that is normally required for product testing through brick and mortar retailers. Chapters 13 and 14 are dedicated to database testing methods.

Diversification Strategy. Occurs when organizations move into new markets with new products. Diversification strategy is usually the riskiest, because the organization is moving away from markets and products they know. For example, an organization that sells commercial ovens may be interested in developing products for the home gourmet kitchen. A database of potential customers could be developed based on variables such as subscriptions to gourmet magazines and recent home purchases. Database methods could reduce diversification risk by using a direct distribution channel. Also,

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similar to the product development strategy, testing the new products on a selected list of potential customers in the consumer market is a way to reduce diversification risk.

Strategy Development, Targeting, and Product Positioning

Although the product/market grid illustrated in Exhibit 2.3 is useful for evaluating potential strategies and setting direction for an organization, marketers must bring strategy down to another level. This level specifically focuses on the target group. The process starts with market segmentation, which is the process of breaking a larger market into smaller groups based on certain characteristics such as demographics, psychographics, and past purchase behavior. (See Chapter 8 for more information on market seg- mentation.) After the market has been segmented, the marketer selects one or several segments to target. The selection of the target group is based on a number of factors such as market demand characteristics, competition, and the organization’s strengths and weaknesses. In some cases, a marketer pursues a smaller segment or niche because it has been rejected or ignored by larger companies. However, the niche needs to have an appropriate return on investment potential for a particular organization.

Once the target market is selected, the product or product line needs to be positioned. Product or brand positioning is a complex area in marketing, and we consider only the basic concepts here. The marketer wants to pos- ition the product to take advantage of the needs of the target group. Positioning refers to how the customers or potential customers perceive the product relative to competitors on dimensions that are important to the target group. For example, online investment companies might want to position their services for specific types of investors. The important product characteristics for novice online investors might be basic investment advice, ease of use, and risk reduction. In contrast, experienced investors might prefer to make their own decisions and seek easy access to data for their own analysis, and they are more likely to want to make timely investments and a greater number of them than novice investors. Therefore, they are concerned with how quickly orders are placed and how the transactions are recorded and reported to them.

To position the investment services properly to a target market, the mar- keter has to incorporate the desired characteristics into the product and communicate these characteristics properly. Marketers often use product positioning maps to examine how customers or potential customers perceive a company’s product relative to the competition. Sometimes marketers see a discrepancy between the desired positioning and the way the target market actually perceives the product. For example, a catalog marketer of inexpen- sive household convenience items wants to expand into a niche market of

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more affluent customers who have an interest in gardening. A new catalog contains more exclusive and expensive crafted items for the garden. The cataloger has to develop the appropriate assortment of products for this tar- get segment to meet their needs and establish the perception that the catalog is “for them.” In some cases, marketers may have to change the brand name to dissociate it from existing brand perceptions that are inconsistent with a new target group. For example, to reach a more affluent market with different tastes, marketers of coffee and chocolates have developed new brands, because the old brands are deeply entrenched in a less exclusive positioning.

Note that in the past, direct marketers focused on the offer and response to the offer and were not generally concerned with establishing a brand positioning. More recently, however, direct marketers have seen the value in establishing a strong brand positioning. This shift in strategy is a result of increasing competition and the realization that customer loyalty is critical for success. Consumers are flooded with offers, and many consumers just filter out most of them, so direct marketers often don’t get the consumer to focus on the offer. However, if a direct marketer does break through to the consumer and satisfies that consumer, it is now important to use that past satisfaction to break through to customers in the future. Strong brand recognition can do this. Therefore, when a catalog, phone call, e-mail, or other direct marketing communication is associated with a brand that a customer likes, these communications are more likely to elicit a favorable response.

Marketing Programs

Marketing programs (also called marketing tactics) are the specific means to implement the marketing strategy. In practice, these programs should be well detailed and include timelines for implementation. Each relevant element of the marketing mix (promotion, price, distribution, product) should be carefully considered. For example, a market penetration strategy might be implemented by increasing distribution or promotion to the existing target market.

Database marketers have several advantages when programs are imple- mented. Because response to programs is fed back into the database, per- formance can be tracked rapidly and accurately. This also allows a quicker response to problems. In addition, testing of direct marketing programs can be more extensive and less expensive relative to mass marketing testing. Some marketers have used database marketing for product introduction and then expanded to mass distribution channels as the product becomes established. In the following sections, we provide examples of how databases can be used in marketing programs.

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Distribution

Distribution systems are the means by which products get to customers. With a database, a marketer can target new customers by directly contacting a list of potential customers. These potential customers may not currently have easy access to an existing retail channel or are looking for alternative ways to purchase products. The databases that are being developed for Internet commerce are a response to this need for alternative ways to pur- chase products. A database system can also be used to track the performance of channel members. Marketing programs directed at channel members can be customized and evaluated. For example, incentive programs directed at specific retailers can be evaluated in terms of return on investment. The distribution program should include details on how the databases will be developed. If lists are used, the program should include information on how the lists will be selected, accessed, and tested for effectiveness.

Promotion

Promotion is the element of marketing that focuses on communicating information about products to customers. Promotion can be straight- forward (e.g., a table of technical specifications) or provocative (e.g., emotional advertising or sweepstakes). Basic promotion goals are to inform, remind, and persuade. With a database, a marketer can develop relevant communications based on the benefits a specific target group is seeking. For example, a new target segment may be more responsive to the durability of a product than to the fashion orientation of current customers. In addition, communications can be adapted depending on other information in the database. The time since last purchase, specific products purchased, and other data in the customer’s record are used to personalize communications. In other words, relationship programs that reward customers based on past purchases require a database to maintain a proper record of transactions and rewards.

Testing marketing communications is an ongoing process with database marketers. Although it is beyond the scope of this book to examine direct marketing communications in detail, we do examine the analysis process of testing database marketing programs. Be aware that direct marketers have developed many processes and techniques for marketing communications. Direct marketing experts like Stone (1996) have noted that certain tech- niques such as sweepstakes promotions or free gift offers increase response rates.

Because the database can provide a more personalized message to individuals in a target group, it possesses a competitive advantage. Compared to mass advertising, in which a marketer immediately reveals

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marketing strategies and tactics to competitors, communicating with individuals in the database is more private. Therefore, a database marketer has the opportunity to maintain an exclusive product positioning or unique communication technique for a longer time.

Price

Pricing is the value attached to a product, and this element of marketing directly has an impact on profits. Setting pricing levels is complex; lower prices don’t necessarily increase demand. With a complex distribution system, the marketer may lose some control over pricing as wholesalers and retailers modify pricing to meet their objectives. But pricing levels in database marketing can be systematically tested and controlled by the marketer. Offers can be varied based on customer characteristics and associated costs. Discounts and other price incentives can be provided to special groups of customers such as first-time buyers or large quantity purchasers.

Product

The product element of the marketing mix embodies all the tangible and intangible aspects of goods and services. Most customers cannot easily discriminate the more tangible aspects of a product from the less tangible aspects. For example, a consumer’s perception of coffee is not only affected by the taste, but it is also affected by the price, packaging, advertising, and where the product is purchased. A low-cost coffee purchased at a discount chain with an “economy” positioning is perceived as inferior by many consumers, regardless of the tangible quality of the coffee.

The customer service element of the product has recently gained more prominence, prompting a focus on customer management and customer loyalty programs. Customer satisfaction or dissatisfaction with product selection assistance, usage advice, and return policies is usually perceived by customers to be part of the total product package rather than separate components. Many marketers believe that they lose more customers because of nonresponsive customer service than because of product failure or dissat- isfaction. Therefore, it is important for most marketers to establish customer service policies and practices that are responsive to the needs of the target market.

We have already noted the product testing advantages that a database pro- vides to a marketer. With this capability, the marketer can fine-tune product development strategies and develop programs to offer customers new prod- ucts based on an analysis of their characteristics. For example, a company

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currently selling golf equipment performs an analysis of the database, and the analysis reveals that many of these customers are also interested in travel. A company with a product development strategy might begin to implement the strategy by testing various golf-oriented travel packages.

Monitor and Control

Marketers must constantly monitor marketing programs. Performance is compared to objectives. If performance does not reach objectives at specific milestones, the program or strategy may need to be modified. Performance deficits may occur due to improper analysis, overoptimistic objectives, inappropriate strategy, or poor implementation. We have already indicated that database marketers can track performance rapidly and accurately, allowing a quicker response to problems. In addition, testing of database programs is more extensive and less expensive relative to mass marketing through physical retail channels.

36 OPTIMAL DATABASE MARKETING

Databases and the Planning Process _______________________ Ideally, database development or expansion should be considered at all levels of the planning process. However, some organizations are not strategically oriented, or a database may be developed to solve an immedi- ate tactical problem without much consideration of longer-term strategies or objectives. For example, a database may be developed to support a specific promotional campaign for product introduction. The reuse of the database after the promotion is not anticipated. Although the temporary use of a database may help achieve some short-term objectives, the real power of databases is in their ability to track and evaluate customers over the long term. Databases can help develop relationships between the cus- tomer and marketer by making the marketer aware of changing needs. From a performance perspective, databases can be used to evaluate mar- keting programs over time and determine the LTV of the customer to the organization.

The marketing planning model we have presented here is intended to provide a perspective on how a marketing database can help an organiza- tion market more effectively and efficiently. The model uses commonly accepted planning elements available from a number of sources. However, marketers use other planning models as well. Exhibit 2.4 outlines a model for direct marketing program planning presented by Roberts and Berger (1999). Note that this model for direct marketing program planning should be based on a strategic plan that defines marketing objectives, target markets, competition, and so on.

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Strategic Database Development 37

Exhibit 2.4 The Direct Marketing Program Planning Process

Establish Communications Objectives Based on Stated Marketing Objectives

Evaluate the Marketplace Business Environment Competition Customer Market Segments Product/Market Fit

Evaluate Past Experience and Performance in Similar Programs

Develop The Communications Strategy Target Market(s) Positioning/Desired Brand Personality Key Selling Proposition(s) Offer Strategy Media/List Strategy Message Strategy

Specify Database Development, Use, and Enhancement Requirements

Determine the Program Budget

Establish the Implementation Timetable

Develop Creative Prototypes

Establish Evaluation Rules and Methods

Direct Marketing Management, 2/E by Mary Lou Roberts and Paul D. Berger. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ.

In this chapter, we attempt to emphasize the importance of determining the fit between organizational objectives and database development. A database has to be designed from the perspective of achieving organiza- tional objectives, and we present a marketing planning model as a means to determine how the database can help to achieve these objectives. We describe how the database can provide an advantage in understanding customer characteristics, developing new products, determining optimal pricing levels, communicating more personally, and maintaining more control of product distribution.

We consider other organizational issues in our discussion of the process of database development in Chapter 5. In particular, we examine how the marketing department must be able to properly communicate with techni- cal personnel in order to develop an effective and efficient database. In addition, as we progress through the chapters, we show more specifically how the databases can help achieve organizational objectives through analysis techniques.

_______________________________________ Chapter Summary

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38 OPTIMAL DATABASE MARKETING

Review Questions _______________________________________ 1. What is the primary purpose of a marketing database?

2. What is the difference between a customer database and other types of marketing databases?

3. Why is it important to examine the marketing environment and organizational resources before proceeding to develop a marketing database?

4. How are database marketing strategies different from marketing programs?

5. What advantages do databases provide to marketers for imple- menting marketing programs?

6. Provide an example of how tactical database implementation is different from strategic database implementation.

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