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A marketing database gets data from the operational database, if there is one. These data consist of a summary of monthly transactions. But the marketing database also includes much more. It gets additional data from Preferences and pro les provided by the customers Promotion and response history from marketing campaigns External sources, such as Experian, Donnelly, and Claritas Lifetime value and RFM analysis, leading to creation of customer segments Modeling for churn and next best product The marketing database passes data back to the operational database. It may advise the operational database The segment that each customer has been placed in, which may lead to operational decisions. Gold customers, for example, may get different operational treatment. Expressed customer preferences, which lead to different operational treatment; e.g., smoking or nonsmoking rooms are assigned automatically.
H o w D ata b a s e M a r k e t i n g W o r k s
The operational database is run by IT. It is run on accounting principles, and it balances to the penny, since there are legal and tax aspects to its data. It is audited by external auditors. It contains only current data on customers. Old data are archived. There are no data on prospects until they make a purchase. The marketing database is managed by the marketing department. It is usually outsourced. It is not run on accounting principles, and it does not need to balance. There are few legal or tax considerations. It contains information on current customers, prospects, and lapsed customers and communications with them. It may retain data stretching back over a period of several years. A data warehouse combines all the data and functions of both an operational database and a marketing database (plus, in many cases, other functions such as employee data, payroll, product data, production data, etc.) in one huge database. The data warehouse is so big and complicated that it needs to be managed by a committee. It is often very expensive to build and maintain. It is seldom very exible. Marketing priorities usually get short shrift in a data warehouse, as other priorities are often given preference.
Why Databases Fail
There have been many database marketing failures during the past two decades, from which companies have learned what does not work. A few of the reasons are Failure to test a strategy on a small sample before a rollout. Database marketing is particularly adapted to setting up tests, which can prove the validity of any idea before serious money is spent on it. Database marketers know this. Company management usually does not. Pushing for quick pro ts has led many companies to fail with ideas that could easily have been tested on a small scale rst. Failure to set aside control groups. If you are going to spend a million dollars on a group of customer communications designed to boost retention or sales, you always should set aside a group that does not
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get the communications in order to prove the value of the effort. Many companies still fail to do this. The result, of course, can be disaster. If the economy is going down and your sales are going down, you may assume that your methods are not working. If you set aside a control group, however, you might nd that the sales of your test group went down less than those of the control group, proving that your communication program worked, even in adverse circumstances. Failure to develop strategies that work. Database marketing has often worked so well that some people have thought that it was the database and the software that were producing the miracles. It wasn t. What produced the miracles were strategies that resonated with the particular audiences represented in the databases. The scarcest commodities in any database marketing operation are imagination and leadership: the ability to think up ideas that will work and the ability to sell those ideas to management and apply them. It is a highly competitive world today. Friends and Family, created by MCI 15 years ago, was a wonderfully creative idea for acquiring new customers. It alone made MCI into a giant long-distance carrier. But once everyone else realized what it was and how it worked, it was copied by others, and it no longer had the power it once had. To succeed, you have to constantly come up with new ideas. Some people just don t understand this. They think that if they build a database and apply expensive software, pro ts will roll in. This is the reason for the CRM craze that hit the database marketing world in the previous decade. If you read the CRM manuals, it almost sounds as if customer acquisition and retention is a simple matter of building a data warehouse and applying expensive software to it. In general, CRM has been a gigantic failure. We shall return to this subject in the next chapter. Focus on price instead of service. The main reason why customers stop using a product or service is not the product or the price, but the way they were treated by the company providing the product or service. Management always thinks that price is the problem, hoping that through discounts, it can buy some loyal customers. Discounts do not buy loyalty. They reduce loyalty. They reduce margin. They get customers to think about how much they are paying instead of about how much they are getting. A database
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