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Having been around since the 1980s, database marketing is nothing new. However, due to the recent data explosion where the amount of information and the number of sources it is being obtained from have increased to unprecedented levels; the possibilities its effective use provides are becoming ever more fruitful.
In fact, a survey conducted by data governance experts the DQM group has revealed that 53% of the 144 UK based organisations polled planned to increase their level of investment in data and marketing during 2013. But what is database marketing and what factors are driving this new found enthusiasm for its use?
What is database marketing?
Database marketing is the process of identifying, collecting and then analysing relevant information about a company’s customers. The database is compiled using data obtained from a range of internal and external sources such as sales information, email correspondence, warranty cards, promotional efforts and, now more than ever, social media. The primary aim of database marketing is to then use the information within the database to implement marketing strategies that ultimately increases profits.
The key driving force behind database marketing is establishing, building and then maintains a relationship with the customer. Developing and understanding how customer relationships work with database marketing can be instrumental in boosting customer retention levels and therefore profits through repeat custom, as well as amassing new customers.
The three main stages of effective database marketing
• Data collection – relates to the aggregation of accurate and relevant data about both existing and potential customers, and then ensuring the data is made available in such a way as it available for use by the company’s marketers in their related activities.
• Turning data into knowledge – requires analysing the data so that it becomes data which can be used in effective marketing and communications. For many businesses this involves using the information to segment existing and potential customers so that targeted and appropriate marketing message can be created for existing and potential customers.
• Developing and evolving business strategies – involves using the data and the knowledge within a database for shaping the strategy of the business. For example, modifying company communications, the allocation of resources, pricing and other concerns that will aid long-term profit in line with the information gathered.
The benefits of database marketing
• Improved profitability – database marketing allows a businesses to segment and target its marketing efforts in a cost-effective manner, whilst improving efficiency and profit margins.
• Increase sales – effective database marketing creates more sales by providing information that allows companies to identify and exploit new market opportunities, as well as attracting new customers.
• Improves marketing communications – accurate data increases the quality level of communications with customers’ existing and potential, allowing a company to massively improve its chances of building lasting customer relationships.
• Improve product development – with the successful implementation of a customer database, a business will be able to gather regular and up-to-date information that can be used as market research to identify where improvements can be made and where customer needs are not being met. This information can then be used in product development through by integrating conclusions derived from the research into the design of a new product.
Examples of when and how it’s used
The information collated and stored on customer databases is used in a vast majority of ways. Here are four of the most common:
• Calculating customer lifetime value (CLTV) – is a prediction model used in marketing that can estimate what the lifetime relationship of an individual customer will be worth to a business. The accuracy of this model and the calculations involved have become a lot more accurate as the methods involved in database marketing have improved.
• Recency, Frequency, Monetary Analysis (RFM) – a marketing technique that is used to calculate the best customers of a business based on a triumvirate of factors; how recently a customer made a purchase, how frequent they purchase and how much they spend. The theory that drives the technique’s use is the marketing paradigm that 80% of your business comes from 20% of your customers. This allows the efforts of the direct marketers to be specifically targeted to the best 20% of customers. Again, like CLTV, the accuracy of this technique has improved as database marketing has.
• Customer communications – an example of how database marketing improves customer communications include using information to personalise correspondence, making it easier to build up a rapport and, therefore, increase loyalty, customer retention and sales. Email, despite the perceptions of spam, has become an essential ancillary weapon in the toolkit of the database marketer, providing the means with which to instantly communicate with customers.
• Analytical Software – increasingly businesses need to monitor their customers’ behaviour across an ever more varied number of retail channels, including websites, mobile apps and social media. Analytical software that is combined with their database can be used to synthesise this information more easily and produce instant reports that help define a company’s marketing strategies.
• Loyalty programs – database marketing makes it possible for companies to launch loyalty programmes, as they can store data about their sales history. This allows companies to engage with and reward loyal customers which, in turn, can encourage customers to choose one business over another.
Despite being around for nearly thirty years the face of database marketing is continuing to evolve. It provides the means, when used effectively, to obtain, store and synthesise important data about a company’s existing and potential customers, which can be used to improve customer communications and, ultimately, increase profits. If your business has not had the opportunity to compile its own database, Refreshed Direct has an extensive range of lists and complimentary services available so that you can start taking advantage of database marketing today.
If database marketing has proved instrumental in improving your business, please share your experiences in the comments section below.