RICHARD J. COURTHEOUX President, Precision Marketing Consulting

From the Practitioners Database Marketing: Miles to Go

I often ask companies some fairly simple ques- tions: Can you tell me how many customers got mailed x times in the last year? Do you have a report which shows customer annual mailing pat- terns (“strategies”), the number of custom- ers who received each pattern, and the asso- ciated results? For any individual customer, can

you display their marketing contacts for the last year? So far, I have no companies with ready answers to the first two questions and only a handful which can address the third.

These are very critical questions for a database marketing company in that they characterize the company’s marketing activities from the customer’s perspective. Answering these questions is really a starting point for refining both the amount and the variety of marketing effort directed at any individual customer. I suspect that companies do not have this marketing information developed, available, and digested because no one is asking these particular questions. Granted, there are some non-negligible systems costs associated with retaining customer contact history, but in the mid-1990s those can be surmounted.

There are some other questions I commonly ask: What is your average customer lifetime value? How much higher is the lifetime value of custom- ers acquired from your best sources? How much has your company’s average customer lifetime value changed in the last year? Can you decompose the lifetime value change into several key factors? What is the percent change in the aggregate asset value of your customer base in the last year? In 1995, I find that many companies can answer the first question about average lifetime value, but few can answer the questions which probe for details, trends, or causes. Here, again, the lack of answers points much more to the lack of questioning than to systems economics.

Permit m e to relate one more set of database marketing questions. How many customers bought in each of your product categories in the last year? To what degree are buyers in each product category more 6r less productive customers in the following year? Which types of prior purchases most strongly signal interest in each product category? A moderate number of companies can answer the first of these questions, but few can easily answer the others.

What is at work here? Is it not curious that more than a decade after the start of the database mar- keting revolution, companies do not have basic customer information describing marketing activi- ties, lifetime value, and product buying progres- sions? I believe that these issues are certainly fun- damental, and that addressing them is not beyond current capabilities.

0 1995 John Wilry & Sons, Inc. :md Direct MarketinR E t ~ l l C J t i O l l ~ ~ Fountlation, Inc. CCC 0892-0591/95/0402-03

2 JOURNAL OF DIRECT MARKETING VOLUME 9 NUMBER 4 AUTUMN 1995

My conclusion is that for all the books, confer- ences, and (alas!) seminars, many important mes- sages about database marketing have been heard, but others have not yet been internalized by industry practitioners. Among the have-been-heard mes- sages are:

Companies should capture the names, ad- dresses, and a wealth of information about their customers. The most critical information is that which de- scribes actual customer behavior, especially buying activity. Addressable media exist which can be ex- ploited to communicate individually with cus- tomers. Powerful analytical techniques can be used to substantially improve the efficiency of address- able marketing efforts. New systems technologies enormously im- prove the economics of computer storage and processing, as well as facilitating end-user in- teractions with databases.

But, among the not-yet-internalized messages are some very important matters which are funda- mental for database marketing to reach its potential. They tend to be messages which are more scientific, conceptual, and strategic. The most important are:

The scientific method is built upon controlled testing to isolate and calibrate the effects as- sociated with different treatments. While sim- ple testing (e.g., format tests) has been part of direct marketing for some time, the current database marketing environment requires more complex test designs. Tests need to eval- uate the effectiveness of longer term, multifac- eted strategies; evaluation criteria need to in- clude not only short-term profits, but also long- term database growth and enhancement. To implement such testing, database marketers must be thinking in terms of long-term strategy and following it up with disciplined, sustained testing over an extended period of time.

0 Database marketing begins with a respect for customer history. Implementing a respect for history carries with it at least two implications.

1. There must be detailed, event-specific data on customer behavior. We still find database marketing software and installed marketing databases which only maintain summarized behaviors. These are fundamentally inade- quate for database marketing.

2. Lifetime value estimation and application are not academic. A database marketer has the opportunity to use data-derived lifetime value estimates in order to make intelligent investments in customer acquisition and reactivation. Without data-derived lifetime value estimation, this opportunity is lost and the process of investing in the customer base is uncontrolled.

0 While computer systems to support database marketing have progressed enormously in the last decade, most of the packaged solutions are still quite inadequate. Many packages follow trendy acronymic ideas in the computer world: GUI (graphic user interfaces), SQL (structured query language), MPP (massively parallel processors), and OLAP (on-line analytical processing). They will do well with certain basics: (a) They can point and click to get simple counts or profiles applying Boolean logic to predefined sets of variables; and (b) Marketing operations such as selection and keycoding are often built-in functions of the package. However, these systems tend to nurture a false sense of completeness when their infor- mational capabilities are really quite limited. If you want to test a database marketing software package’s capabilities, ask it to produce answers to the questions posed in Paragraphs 1, 3, and 4.

0 It is taking a long time to see the serious emer- gence of “marketing scientists” in organizations trying to follow a database marketing path. Com- panies often hire a shaman to build models or perform specific statistical wizardry. It is much more difficult to find examples of quantitatively

JOURNAL OF DIRECT MARKETING VOLUME 9 NUMBER 4 AUTUMN 1995 3

0

highly trained individuals working on fundamen- tal marketing problem formulation and analysis. High-quality marketing scientists are currently very difficult to find, but without them it will be impossible to move database marketing to the next level. The marketing database should drive marketing planning and decision making by addressing the whole marketing effort. Companies which focus too specifically on the tangible expected appli- cations have a hard time transitioning to a broader and more comprehensive use of customer infor-

mation. They tend to end up with systems that tactically support only certain applications, most notably, segmentation.

My hope is that in the second decade of database marketing, these messages will be heard, internal- ized, and implemented. To achieve this we will need a patient, organized reorientation of marketing built on the full set of fundamental database mar- keting concepts. Then we will reach the real rewards of a database marketing that is customer focused, information intensive, and long-term oriented. W

4 JOURNAL OF DIRECT MARKETING VOLUME 9 NUMBER 4 AUTUMN 1995