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 How 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 must achieve:

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 profitability.

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 are:

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 at Arthur.hughes@kbm1.com or at (954) 767-4558.

 


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