to Use Database Marketing to Improve Sales, Profits
By Arthur Middleton Hughes
Many companies today, including banks, are investing
heavily in database marketing. In most cases,
several million dollars are required for design,
software and database construction. Some companies
are finding, however, that the early paybacks are
not as high as expected. What is the problem?
Marketing databases do not generate revenue by
themselves. They must be used in an active program
of profitability analysis, customer segmentation,
and marketing tactics that build retention, loyalty
and increased sales. There are four key database
marketing requirements which any successful project
• Collect relevant and accurate data about their
customers. This means the construction of a
comprehensive Marketing Customer Information File (MCIF).
• Develop an accurate and credible system for
determining the profitability of each customer, on a
periodic basis, preferably at least monthly, using
day to day inputs on interest rates and costs.
• Develop segmentation schemes that divide customers
into useful and actionable segments based on
• Develop and implement tactics, based on these
segments, which are used to modify the behavior of
employees and customers to increase sales, improve
retention, lower costs and improve profits.
If companies execute successfully all four steps,
the payoff can be quite significant. There are three
basic steps to be taken in database marketing. They
• Collecting customer data: Includes gathering
relevant and accurate data about prospects and
customers; storing and updating it in a database;
making it available to marketers and other company
staff in a form useful for database marketing. Few
financial services companies, including banks, have
gotten beyond this phase. Most of them feel they are
successful if they have built a customer marketing
database and conduct a few surveys of customers.
• Turning data into knowledge: Requires developing
methods for data analysis so that the data collected
can be understood and converted into knowledge and
actions. This process involves developing
appropriate customer and prospect segmentation
schemes, modeling, scoring, and profiling. It
involves conducting tests and setting up control
groups. Many companies have experimented with
solutions to this problem, but most of those have
not yet even solved the collection problem.
• Developing strategies and tactics to modify
behavior: Involves using the knowledge gained from
solving the first two problems to modify the
behavior of employees, customers and prospects so as
to improve the long term profits of the institution.
This step may include such tactics as reallocation
of resources, communications, dialog, loyalty
programs, customer specific pricing, frequent buyer
programs, special services, recognition, performance
measurement and incentives. All companies have
experimented with various aspects of behavior
modification, but most have tried it without first
solving the first three basic problems.
• Integrating customer profitability with the
database. Some companies today have been able to
develop profitability at the customer level;
integrate this data with the other data in the
customer database and use the resulting knowledge to
segment their customer base. With this knowledge,
these companies can develop targeted marketing
strategies and vary service levels based on customer
value. The process can be highly satisfying to the
customers and improve profits for the company.
---- Arthur Middleton Hughes is vice
president/solutions architect at KnowledgeBase
Marketing. His website is dbmarketing.com. Contact
Arthur.firstname.lastname@example.org or at (954) 767-4558.