The Future of Database Technology in the Communications Game
“Once technology rolls over you, you’re not part of the steamroller, you’re part of the road”. These words by US marketing consultant James Rosenfield might sound quite harsh when he warns of the potential threat technology poses when neglected by today’s managers. But with an ever increasing pace of technological development, even the most hardsotten in the marketing community have to face the facts and open up to the many advantages and benefits information technology has to offer.
For more and more organisations this will take place in form of the computer database as the central resource and marketing tool. Subsequently, the use of personal media like the telephone – especially voice mail and bulletin board systems (and soon the Internet too) – , as well as fax, inter-active television and video will play a major role in counteracting the current trend of diminishing advertising, sales promotion and even direct mail effectiveness.
A frightening gap
According to Donnelley Marketing Inc., 85% of US manufacturers and retailers believe they’ll need database marketing to be competitive past the year 2000. That this mindset hasn’t reached South Africa yet is not unusual as such, but what is surprising is that, according to a local study by BMI Techknowledge, only 41% of respondents make use of a database system within their organisation. This compares to 94% for word- processors, 93% for spreadsheets and 45% for business graphics.
The reason for this can be found in the fact that it is mass marketing thinking and practice that reigns South Africa. This explains why the marketing database, which is the ideal location for both storage and analysis of the customer’s personal and transaction information, and the effective use of personal media are two rather undeveloped areas in this country.
It goes without saying that this kind of information – if structured properly and updated on a regular basis – constitutes a powerful competitive weapon. Not only allows it to streamline the company’s marketing expenditure and increase the return therefrom, it is also the ideal basis for establishing profitable long-term customer relationships, which in turn can lead to a significant simplification of the marketing executive’s decision-making process.
The benefits of collecting market information itself on the database are multifold. Nevertheless, the real advantage only comes into effect when this information is brought back to the market – that’s why it’s called database marketing; after all, it’s about efficient and effective communication.
An example: The simple analysis of the last purchase date combined with the sequence of the last purchases and the total sales amount gives a clear indication of the customer’s real value to the organisation. It allows to identify current and lapsed customers, shows frequent buyers and those who spend extraordinary amounts of money. This is being referred to as RFM analysis, which stands for Recency, Frequency, and Money.
Based on this knowledge, the marketing department is able to tailor-make its communications, thus cutting out all non-prospects, which in isolation will save a significant amount of promotion expenditure. Furthermore, existing customers need to be grown, whereas lapsed customers reconciled and prospective ones acquired. It wouldn’t make much sense to target all three with the same (mass-)message. Segmentation into different categories not only saves a great deal of money, it also reduces the risk of annoying the customer with unwanted communications and increases their likelihood to respond and buy.
Stan Rapp, co-author of ‘Beyond MaxiMarketing’, is one of the many new-age marketers who declare traditional mass marketing dead and instead stress that the database comes first. “Prospect or customer database-driven strategy drives the other marketing components. This strategy shapes the advertising message, sales promotion and direct marketing, leading to a goal that is both short-term and long-term maximised sales results.” The implications of database marketing will have a far-reaching impact on traditional communications media which in turn will have to adapt to this new way of identifying and communicating with individual customers on a 1:1 basis. Database-driven strategy thus means that all external communication, be it with suppliers or customers, stems from information residing on the database.
Share of Customer
Don Peppers and Martha Rogers, in their book ‘The One-to-One Future’, focus on just this 1:1 relationship with the customer, once more stressing the importance of the customer’s lifetime value: “The central proposition, the defining goal, for any business in a 1:1 world, is share of customer.” And: “Today’s mass-marketing paradigm has no need for interactive media and computers that track individual customer transactions linked over time. Tracking customers and conversing with them individually are not tasks that fit into a market-share approach to competition.” How to get it right? Peppers and Rogers believe that “The most indispensable element of your relationship with each of your customers in the 1:1 future will be dialogue and feedback. What do customers really want? What does *this* customer really want?”
Stating the example of Kellogg with an annual adspend of several hundred million dollards but without any meaningful way of communicating with the individual customer, Peppers and Rogers reveal the dilemma that, in this instance, packed goods manufacturers face: “Until very recently, what individual customers did, individually, was of no interest to the mass marketer because they couldn’t use this kind of data, except within the limited realm of consumer research. …They have no way of tracking you personally. You are a demographic or psychographic statistic, averaged in with others who are your age or income level.” They predict another ten to fifteen years to pass before Kellogg and other packaged goods manufacturers think in terms of miniaturised marketing. “In the meantime, almost any other kind of business can begin to profit by applying 1:1 thinking today, using current technology.”
According to John Fraser-Robinson, a leading UK direct marketing consultant and author of “Total Quality Marketing”, new breed of managers is necessary to cater for the needs of individual customer communications. These ‘hybrids’, as he calls them, understand both the world of marketing and information technology, as well as the implications the 1:1 paradigm has on the organisation’s communication and corporate strategy. It will be the hybrids who will ultimately shape the organisation; who fuse data processing and marketing departments into one profit-making entity and create the right environment for long-term relationship management.
It is not only the improved and more profitable way to communicate with the market which calls for a marketing database. The system can also be used as an in-house research and forecasting facility. Furthermore, it can be used to add extra value to the personal contact between sales and service people and the customer, thus contributing to improving the image of the organisation as a whole, not to mention the job satisfaction derived from a personal and constructive contact with the customer.
Stan Rapp emphasizes this: “Database marketing has a number of crucial benefits. It increases the efficiency of the sales force, and helps the leading marketer to retain dominance in the market. Other marketers can use a database to steal market share from the leader by thorough knowledge of his opponents’ customer database. It also gives the marketer added ability to hold the sporadic “in-and-out” customer and enhances customer value.”
In an age of increasing product parity and the advent of the information superhighway, organisations can also gain extra benefit from satisfying customer needs in addition to their traditional line of business. Again, knowledge of what is needed can be gained from database analyses, which hosts the data gathered through individual customer relationships.
Data Privacy: Don’t make the mistake!
This brings up two crucial issues of database marketing and relationship management: the depth of the relationship and data privacy. Ideally, any organisation should strive for honest relationships with its customers, based on mutual trust and respect, because only in this climate one can obtain far more than the usual address and purchase details. If customers realize they can benefit from supplying the organisation with additional information – be it in form of less hassles, discounts, etc. – and the organisation realizes too, that it can benefit from the responsible use of this intimate personal information, then it becomes clear that an abuse of this knowledge by selling database information for additional profit is simply prohibited. Not only will it destroy the trust between individuals, but will also lead to an erosion of the organisation’s corporate image as annoyed customers quickly spread the word. It is only allowed in those instances where the customer has given personal permission to use it for another company’s marketing campaign.
Unquestionably, the most useful and actionable kind of information comes from dialogue, which can only come with trust. Trust means protecting a customer’s privacy, by not abusing the information that has been obtained from such dialogues. Peppers and Rogers go one step further: “Today, you have to protect your customer’s privacy yourself, in order to ensure a continuing dialogue. Tomorrow, your customer’s privacy will be an integral part of whatever 1:1 media instrument you use to communicate with him.”
If, as widely practiced in the US, the practice of selling customer information sustains, the end of the many distinctive benefits of database-driven marketing is in sight. If handled responsibly, it can strengthen any organisation to such an extent that it will be increasingly difficult for competitors to regain lost ground or even enter the market. Database marketing as such does not guarantee market dominance but when used in conjunction with and effective corporate information system, human resource development and training, and inevitable adjustments to the organisational structure, the synergy derived from these forces cumulates in a highly effective and profitable total customer management as part of a total quality management process.
Database marketing is not a piece of hard and software with campaigns to generate information. It is not an isolated part, but will rather form the core of any business operation as it affects and is being affected by other areas. If planned and implemented properly, it will save money, increase profits, reduce stress, interdepartmental conflict and much more.
Implications for South Africa
That database marketing will leave its mark on South Africa goes without saying – it’s only a question of time. But whether it follows the short-term profit-oriented route many American companies have chosen, and subsequently putting the whole idea at risk, or applies a responsible approach and refrain from sales of this nature remains to be seen.
The paradigm of 1:1 communication using database marketing is new in this country. If South Africa can get it right, it will not only improve its international competitiveness, it will also be a far better place to live, because savings will be passed on to the consumer – a long overdue step in any case. SA business shouldn’t wait until foreign competitors force them to act – by then it may already be too late for some traditionalists.
Eventually, the introduction of database centered marketing will be very much like the acceptance of any other product – there are leaders and followers. Only this time followers will face a task of a different nature as customers flock to those organisations where they are treated as individuals and not as statistical averages – sheer survival!
