Database Marketing Beginners Guide
Today, almost everything has been digitized or automated. Problem-solvers develop systems that can address the issues at the root. In business, marketing is certainly one of the aspects that management pay a lot of attention to, also in terms of investments.
Marketing is a very broad discipline, which is contrary to the general perception that it only covers matters regarding advertising and executing a product or service campaign. It starts way before that, from the time that the business identifies its market and its target consumers. The amount of data to be gathered is voluminous – particularly since we are talking about data on the consumers of the company – which means there is a danger of getting the wrong information if it is not handled properly.
In order to setup and utilize this data effectively, companies use database marketing.
In this article, you’ll learn about 1) database marketing and its function, 2) the different types of database marketing, 3) how database marketing works, and 4) the challenges and limitations of database marketing.
DATABASE MARKETING AND ITS FUNCTION
Database marketing refers to “the systematic approach to the gathering, consolidation and processing of all relevant consumer data that is maintained in the existing databases of the company.”
The concept of maintaining databases for consumer data is no longer new, since businesses have been doing it for a long time. However, it was only recently, when the amount of consumer data has multiplied, that organizations saw a need to adapt another approach to keep up with the ever-increasing bulk of information.
And it is not just the increasing amount of data that has spurred the rise of database marketing. Industries, and even marketing itself, has become increasingly competitive. Media has also evolved in such a way that traditional media is no longer sufficient to keep up with its advancement. Sales channels have also become very crowded.
Even the way that business transactions are conducted has also evolved. New methods of purchasing, shopping and payment have been introduced, and the whole purchasing process has sped up. Customers also take a shorter time to make their buying decisions. To this end, database marketing has become very important.
Database marketing is especially equipped to handle these huge amounts of data, and process them in a more advanced and sophisticated manner, often making use of automated systems referred to as database management systems, or a DBMS. Traditional marketing approaches involve gathering and consolidation of these consumer data, to be retrieved later on for marketing purposes. With the presence of a DBMS, the data, no matter how huge, is now stored and refined within an automated environment, and subsequently processed through the system’s features or functionalities in the performance or implementation of the organization’s marketing efforts. The DBMS will also be used in the analysis of the data, and this is a feature that is not in the traditional form of direct marketing.
It is for this reason that database marketing was also defined as an approach where activities related to communication, promotions, advertising and selling, are based on a DBMS. The data that is generated from the routine selling and marketing activities of the organization is subsequently stored in the DBMS. The DBMS will then refine and process these data for future decision-making.
From the above definitions of database marketing, we can now infer its main function, which is as a form of direct marketing to generate communications that are personalized or customized, and are effective in promoting a product or service that the company offers. Since the communications have been personalized for the consumers, the relevancy and interest in the offered product or service will be higher.
TYPES OF DATABASE MARKETING
We can categorize database marketing into two general types: consumer database marketing and business database marketing. Obviously, what makes them different is their target group; the first one is on consumer data, while the second is concerned with business data.
Consumer database marketing
This type of database marketing is mainly designed for companies that are business-to-consumer (B2C), or sell directly to consumers. This calls for tighter security measures in place, particularly with respect to the privacy of the consumers whose data are stored in the database. As a result, many privacy laws apply to these consumer databases.
The customer information used in customer database marketing covers information about existing and prospective customers and, aside from name, address, transaction history and demographics, it also often includes the history of communications made between the company and the consumer. Data is often obtained directly from the consumers, or through third-part data compiling companies.
Business database marketing
This type is geared primarily towards business-to-business, or B2B, marketers. Unlike consumer databases, the information contained or stored in business databases are much more advanced, although they are often subject to less restrictions and privacy limitations as the former. They are also not as voluminous as the data involved in consumer database marketing.
This is partly one of the reasons why business data marketing is seen to be more limited than consumer database marketing. Data input is often derived from the company’s own sales and marketing departments and, often, through direct interactions with customers. There are also third-party businesses that compiled data for B2B marketers.
HOW DATABASE MARKETING WORKS
Usually a marketing database includes the following:
- Names, addresses and other key demographic information about consumers
- Transaction history, containing details obtained from delivery or sales systems used by the business
We can get a better look at the process by following the four stages of database marketing:
Stage 1: Data Collection
Sources of the information stored in the database are varied, from other systems used by the business to independent data-gathering third-party companies or bodies that provide or sell the information they have compiled. They may also be directly provided by consumers, through lead generation activities including filling up surveys and forms, such as subscription forms.
The data that will be collected and stored in the shared marketing database may be obtained through the following:
- Advertising and public relations efforts of the company
- Direct mails sent from the company to its targeted consumers
- Inside and field sales, or actual transactions between the customers and the company
- Customer service representatives
- Telemarketing and sales promotions conducted by the company
- Website usage
There are third-party companies that sell data to companies that need them for marketing purposes. In other cases, other businesses that compile transaction histories of their own may also share (or even sell) these data to other businesses. Of course, these are subject to privacy laws and regulations, depending on where they are located and what laws govern them.
We have identified the three main types of data that are collected for purposes of data marketing. But we can further identify the other types of data that are considered relevant for exactly this purpose.
- Appended Data, or data that are appended to the names and demographics details of the consumers or businesses being targeted. Examples of appended data include income, purchasing preferences, and credit history. It would largely depend on the market or niche that the business operates in. A company that sells automobiles will consider the following appended data: the current value of the customer’s car and the number of years of ownership and usage of the car. A realty company will also look into a client’s length of residence in his current home as well as the number of people in the household. These data will provide a more in-depth look into the consumers.
- Email Marketing Data, or information obtained from email communications and subsequent tracking and follow-up of these communications. The most common methods of gathering this information are email surveys and customer reply forms. Shipping documents are also useful since they contain tracking numbers that will be of use for marketers.
One of the biggest risks when it comes to data collection is duplication of data. The database marketing team must see to it that this does not happen, in order to avoid redundancy of information and, obviously, incurring higher costs in data gathering. The business might end up purchasing data from a third-party data compiler when they already have that data to begin with.
The data must also be up-to-date, because they will not be relevant if they are no longer applicable in the current period. While it is true that some information may still be useful even if they are of a historical nature, they are mostly used for purposes of comparison. Updated and new data is still the most relevant when it comes to marketing.
Businesses maintain their own data warehouse, where all the data gathered will be stored and managed. Part of its function is to keep data updated when necessary. You can say that it serves as the data headquarters, where the data will be managed and disseminated to the branches or departments that need it.
Stage 2: Turning Data into Knowledge
After the data has been gathered, the next phase would be analysis of the data into information that can be used for the company’s marketing efforts. Again, this will be through the DBMS, which will then generate communications that will be delivered to the consumers. Statistical techniques will be used on these data, in order to develop models of consumer behavior. From the developed models, it will be easier to make a selection of the customers or consumers who will be targeted for communications. Normally, selection of the customers involves conducting customer segmentation, since this will make it easier to decide what forms of communication to send which group of customers.
Stage 3: Delivery of Communications
Now it is time to send the reminders, updates, promotions and other marketing communications to the customers.
The communication methods used are the same as with traditional direct marketing. Usually, the delivery is done electronically, through e-mail. Basically, those e-mails that arrive in your inbox, are the communications generated by database marketing teams of a company. If those communications are deemed to be unwanted, they are what are referred to as junk mail, and will likely be delivered to your spam folder.
Part of database marketing is also coming up with a schedule when to send these reminders. Customers are easily turned off when companies flood their inboxes with too much communication, while customers also tend to forget the businesses that send updates only every three months or so. Based on the data, you will be able to tell the most reasonable frequency of sending communications to customers.
Stage 4: Developing and Evolving Business Strategies
Database marketing is not just about creating lists for targeting in a business’ direct communications for marketing purposes. It is actually bigger than that. It does not stop when you were able to send the communications to your customers and were able to translate them into actual sales and revenues for your company.
The information that was used will still undergo deeper analysis so management can come up with business strategies targeted for the long-term. Databases play a crucial role in forecasting, which is one of the elements of business decision-making. Customer retention and loyalty, and establishing business reputation, for instance, will benefit from the usage of the data gathered, analyzed, and utilized in communicating with the customers. In the end, it is not just for marketing purposes, but for the overall growth and development of the business.
CHALLENGES AND LIMITATIONS OF DATABASE MARKETING
Database marketing is not without its limiting factors. As much as all businesses would want it to be smooth-sailing, there are still challenges and issues that it must contend with from time to time.
- No uniformity in application. One thing that businesses must understand and accept is that database marketing is not a “one-size-fits-all” application. Just as businesses have varied database marketing system designs, their approach in database marketing may also vary, and that depends mainly on the actual needs of the business, as well as its objectives.
- Tools and technologies availability. An effective database marketing system also relies a lot on the tools or platform used. If the business fails to find one, or to create its own, the operation of the system may not be as expected.
- Huge investment. Maintaining a database marketing system costs money – lots of it. The business must be willing to make a huge investment in this aspect. We are, after all, talking here about technologies, manpower, and even outside or external collaborations or partnerships in gathering or compiling data and even communicating with consumers.
- Limitation of targeted audience. The most responsive customers when it comes to the use of database marketing are those who are actively participating in the data-gathering collection techniques, such as those who subscribe to mailing lists, fill out surveys and application forms, and who entertain telemarketing and similar promotional tools. Businesses who have a target market that is comprised of consumers who make use of the internet and those who do not, for example, cannot expect to reach all their customers through the use of database marketing. They are only likely to send out communications to the first group – the one who uses the internet in their transactions – and not the non-Internet users.
In the end, database marketing will only be effective if the following conditions are met:
- If the data or information are accurate and up-to-date
- If the correct analytics or statistical methods are used for analysis
- If the software network and the level of connectivity being utilized is also effective
Data is the starting point of database marketing, so that remains to be the key point. Everything starts with data, whether it is the right data and subsequently used properly.
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