Despite high interest in database marketing (DBM), many marketers still have not implemented DBM. One of the reasons for this is a lack of practical information. Depending on your objectives, you should consider one or more DBM strategies including:
1. Segmentation
2. New Customer Acquisition
3. Customer Penetration
4. Customer Retention
5. Marketing Intelligence
6. Measuring Results

Step 1 – Segmentation

Segmenting customers and prospects into various classifications is the first step in DBM. The most basic level of segmentation involves classifying, coding or sorting customers and prospects by type, size or potential. Business marketers can utilize Standard Industrial Classifications (SIC codes) established by the federal government to categorize most business types. Other typical classifications include sales revenue, employees, product purchases, purchase interest, etc.

A higher level of segmentation involves profiling, scoring, or modeling of customers and prospects. Profiling identifies frequencies (percentages) of different categories, for example, financial services comprise 17% of XYZ Corporation’s customer base. In addition, the 80/20 rule can be illustrated utilizing percentages, for example, 80% of XYZ profits are derived from the top 20% of customers.

Scoring, as the name implies, ranks segments or individual customers by some predetermined criteria, often sales or gross margin contribution. Dividing the ranked list into three groups is common to identify heavy, moderate, and light users. Mail order marketers utilize RFM, that is recency, frequency and monetary or transaction value, as criteria for judging customer worth.

Modeling employs statistical techniques like multiple regression to identify factors that correlate to high sales potential or likelihood of promotional response. Prospective customers can then be “fitted” to these models to determine which prospects should be priorities.

Step 2 – Customer Acquisition

Identifying and communicating with high potential prospects is a goal of most marketers. The segmentation tools described allow you to focus on prospects that are “heavy users” or that fit predetermined criteria. DBM can be utilized to identify new customer “gains”, and to track trends in new customer activity. Finally DBM can be used to target and manage prospect communications, marketing, and sales programs.

Step 3 – Customer Penetration

What is your “account penetration” level by customer? DBM can help identify penetration by comparing transaction data to total customer purchases. In addition, modeling “ideal” product mix by customer type will identify cross-sell and up-sell opportunities. Again, the segmentation step can identify opportunities.

Step 4 – Customer Retention

Strategies in this area have grown in importance since the high cost of new customer acquisition has been well documented. DBM can support the identification of lost customers to be reclaimed, dormant customers to be reactivated, as well as the Lifetime Value (LTV) of customers. DBM often is the foundation for implementing loyalty building strategies including continuity or points programs, recognition, and other value-added marketing or sales programs.

Step 5 – Marketing Intelligence

Sometimes a by-product of DBM is the ability to utilize the database as a marketing intelligence device. Segmentation supports intelligence gathering. Often a customer record will include unlimited text entries. Remote database access and “real-time” updating reinforce marketing intelligence applications.

Step 6 – Measuring Results

Tracking of marketing, sales, advertising and communications program results is possible by “capturing” customer/prospect responses, transactions, etc., in the database. Updating customer records allows the database to remain “fresh”. In addition, coding and sorting allows for the testing of alternative programs or offers, with responses carefully measured to support ongoing improvements.

Why Database Marketing?

Database marketing promises to deliver more effective marketing and communications, first by improving customer understanding through segmentation, and then by using this information to communicate with customers in a targeted, even personalized, way. At least six DBM strategies should be considered including segmentation, customer acquisition, penetration, retention, market intelligence and measuring results.

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