If you want to know how to acquire and keep a customer, then this is the perfect forum to discover how the database is really the hub of all direct marketing activities.
In this blog I’ll explain how to plan for a successful database while giving some thought behind successful direct marketing efforts based on using the humble database.
So why on earth do you need to keep a database anyway? Well here are just a few reasons:
- Provides a comprehensive picture of customers and prospects
- Increases the value of your customers by providing an opportunity to up sell and cross sell
- Allows you to match products and services to customers wants and needs
- It is the perfect tool to help you build relationships with customers
- Helps retain existing customers and acquire new customers
To provide a definition for the common database, it is simply a way for you to record relevant data about your customers and prospects. It would include only information to help you maintain a relationship with your existing customers by recording a history of the communication over time.
Databases should be planned and developed as a separate entity to your overall strategy plan. If you’re a small business, then recording information in an excel spreadsheet should be easy (Just make sure you back this up on more than one computer, or an external hard drive).
Larger businesses typically prefer an off-the-shelf or purpose built database system which can be tailored to specific business requirements or integrate easily with other database systems in use e.g. Sales, financial and operational.
The key aspects to remember when planning your database are:
- How you collect the data
- What type of analysis will be undertaken
- How you report on the data
Collecting Data
Be really careful when collecting customer information. If your selling consumer based products such as beer, then asking for a customer’s job title is not relevant information. However, if you are marketing a conference to a specific industry, then this type of information is exactly what you’re after.
I’ve also learned that the more fields the customer has to complete, the less likely they are to complete the transaction, whether it be an email enquiry or purchasing a product online. So make sure you only collect as much information as you need.
In some instances, you may be able to ask an additional question which may help you gain greater insight into the customer. For example, requesting a customer’s birthday may help you provide a special birthday offer.
Collecting Customer Data on the Internet
Many businesses these days allow customers to update and manage their own personal information using a secure page within their website. The benefits are notable, where the customer essentially becomes the data operator. There is no manual input required by the business and less administration costs are incurred as a result. The internet simply feeds directly into the database in real time.
Fairfax Media sets a great example, where you can choose the online content you wish to receive and it is up to you to keep your address and contact information relevant. BPay is another good example of customers being able to update their financial data in real time. If your credit card has expired, then your transaction would not be processed until new details have been updated and approved by the transactional system.
Learning From Your Database – Analysis and Segmentation
Your business database is multi-dimensional providing a plethora of information about your customers. You should be able to analyse and segment it readily, while building and retaining customers.
Data typically collected may include geographic information such as address details, demographic information such as age, marital status or the number of children. While psychographic information typically includes more abstract characteristics such as interests and opinions.
A common example of database segmentation may involve analysing the georgraphic trends of your customers, which has been derived from the collection of address information. If you find that certain suburbs are purchasing from you, then it could be advantageous to do a mail drop to these suburbs, or to provide a more personalised offer to your prospects, you could engage a list broking company which specialises in collecting customer information which suite your customer profiles.
To rent a list for a once off use are typically charge a $250 set up fee, then databases may cost anywhere between $300 and $500 per thousand depending on how accurate the data is, who owns it and how much customer information you request (e.g. email and mail).
Please remember that a rented list is just a one dimensional database and is more commonly used to test against your database, typically in acquisition marketing campaigns.
Financial Data – A Simple Guide to Analysing RFM Transactions
When evaluating the customers previous buying behaviour there are three principles to you need to be aware of, which will provide key information into your customer’s previous buying habits. These are:
- Recency
- Frequency
- Monetary
The Acronym obviously being: RFM
Recency is the most predictive tool, allowing you to document the latest purchase or communication activity.
One general assumption could be that the more recent customers are most likely to buy from you again. In this instance, you would select customers by the most recent purchase date, then contact each of them when they near the end of the purchase cycle.
Frequency indicates the number of purchases over a determine period or timeframe.
If a customer likes your products then they are likely to buy form you again. In this instance you would communicate regularly with your client, perhaps signing them up to an email broadcast. This is a great way to send tailored product information, new sales or new product information, and even provides an additional up sell/cross sell opportunity.
Monetary is the total expenditure made by a customer during the same timeframe.
Customers who spend a lot of money may do so again, whether it be over a period of time, or a once off. In this instance, a special promotion may be the best way to attract this customer again.
In Summary
In essence, the most valuable customers are those that rate highly using all three (RFM) criteria. By providing a measure of previous buying behaviour, it allows you to predict future behaviour, with accuracy being an essential ingredient for database predictability. This is why the old cliché ‘it is cheaper to keep an existing customer than it is to find a new one’, is very true indeed. Besides that, it just makes good business sense to know your old customers.
To illustrate the power of retaining old customers, I’d like to demonstrate an example to win back customers in the retail sector. This could potentially be applied to any retailer such as clothing, cars or sporting goods.
Basically every retail classification has a repeat sales ratio. In the clothing business there is typically a ratio of three to six months, as shoppers tend to buy with the seasons. With cars, you could be due for an upgrade every 3 years, or when the next model becomes available. Based on the repeat ratio, every retailer has a built in ‘reverse horizon’, where a customer will be lost to the competition if they are not reactivated within a given time frame. (Claude A Johnson, Winning Back Customers Through Database Marketing).
So, using the valuable RFM information provided by your database, you can select customers that haven’t shopped in the store over a set time frame. From there, you can further target customers who spent considerable money with you and were the most valuable to the company. (It is always a good idea to focus on the top 20% of your customers as they will always provide a greater return of investment).
The offer may involve sending a personalised letter directly from the business owner saying, “I haven’t seen you in a while. I would like to invite you to visit our store to see our new selection of branded products”. Enclosed within the letter could be a personalised voucher providing 20% off any purchase.
You may very well wonder how a successful a marketing campaign to an inactive customer could potentially be. The answer is very successful.
Reporting Campaign History
One of the most powerful advantages of database marketing is the ability to measure the results of each and every promotional campaign or event. In contrast to other advertising mediums, there’s absolutely no guess work.
But many businesses fail to record their campaign history. Response and conversion rates provide evidence of marketing success and failures and also allow you to test element results with the campaign. But I’ll discuss this in greater detail in my next blog regarding simple ways to test, measure and record your marketing activities
On that note, I’ll sign off until then.
Craig
