Transcript No Slide Title

How and why to build
a marketing database:
In-house or Out-Source?
Title18, 2008
Sept
10:00 AM CDT
Subtitle
Arthur Middleton Hughes
Vice President / Solutions Architect
KnowledgeBase Marketing
Date
Who is That Guy Who is Speaking?
Arthur Middleton Hughes, Vice President /
Solutions Architect at KnowledgeBase
Marketing has spent the last 20 years
designing and maintaining marketing
databases for database marketing clients
including wired and wireless telephone
companies, insurance, banks, catalogers,
pharmaceuticals, package goods, software
and computer manufacturers, resorts, hotels,
automobiles, and non-profit fund-raisers. He is
the author of Strategic Database Marketing
3rd Ed. (McGraw Hill 2006).
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Multiple Sales Channels
Web & Email
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Retail & Wholesale
Fax, Phone & Mail
Data Stored in Separate Silos
Web & Email
Web Database
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Retail & Wholesale
Retail POS
Database
Fax, Phone & Mail
Telesales
Database
Result: No One Understands the Customer
• Emails sent based on email response alone, not on
overall purchases
• Gold customers are seldom recognized
• Long time customers treated as strangers
• Customers feel unappreciated
• You may lose your best supporters
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Solution: Build a Central Marketing Database
Web & Email
Retail & Wholesale
Data Cleaning &
Consolidating
Consolidated Marketing Database
Updated weekly, daily or more often
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Fax, Phone & Mail
What is Kept in the Database Record?
Transactions
Promotions
Responses
Consolidated Customer
Marketing Database
Appended Data
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Web Behavior & Cookies
LTV, RFM
Model Scores
Segment #
Status Level
How is the Database Used?
Email Campaigns
Phone Campaigns
Direct Mail Campaigns
Consolidated Customer
Marketing Database
Customer Segmentation
Models and Analytics
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Status Level Rewards
Website Recognition
Defection Prediction
How is the Database Accessed?
Marketing Staff
Analytics Staff
Access through the Web
Data Center for
Updating and
Maintenance
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Consolidated Customer
Marketing Database
Website
Marketing Databases and Operational Databases
Data Append
Model Scores
Operational
Database
Sales, Shipment, Payment
Transations
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General Ledger
RFM & Lifetime Value
Marketing
Database
Marketing Communications
Promos & Responses
Surveys & Preferences
In-House or Out-Sourced?
• Some companies feel that such databases should be
built by in-house IT
• “This is proprietary customer data. We just cannot afford
to have it leave our premises”
• Possibly, but perhaps the real reason is that IT does not
want to lose a valuable function.
• What’s wrong with building a marketing database inhouse?
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A Ridiculous Example
• It would be possible to build a company truck from parts
purchased from an auto supply co.
• It would take a year to build and not work as well as a
production model from Ford or Chevy.
• But: your staff would now know how to build a truck from
spare parts!
• Problem: most companies are not in the truck building
business. The truck would not be available for deliveries
during the construction period.
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In-house Marketing DB Similar Problem
• No one in IT (typically) has ever built a marketing
database before.
• Marketing DBs require special software not normally
used by IT: merge purge, geocoding, on-line access, adhoc data mining and reporting, segmentation, appending
data, etc.
• There are many software packages required. Each has to
be studied, purchased and staff has to be trained to use
them.
• It will take a lot of staff time, and many months.
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Better Solution: Have DB Built by Experts
• There are dozens of companies that have built scores of
marketing databases.
• They have the software and experienced staff
• They can get your db up and running faster and at less
cost than an in-house pickup learn-on-the-job crew.
• Once it is up and running, you can migrate the DB to inhouse staff
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The Constant Change Issue
• Most IT operations are designed to run for years without
change.
• Marketing programs are experimental: constant tweaks
and changes needed as the market shifts
• IT says to marketing: “Why can’t you guys make up your
minds?” They resent the constant shifts
• Besides: IT’s main job is payroll, inventory, billing or
manufacturing. These jobs will always take priority over
marketing. You will just have to wait.
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How You Relate to a Contractor
• If your db is built by a contractor, you can hold them to
timetables and quality standards that you could never do
with your in-house IT staff.
• Develop a tight contract that puts marketing in charge.
• Make sure your contractor has built several marketing
databases already for other companies.
• Call the references and ask how well they performed.
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Case Study on Outsourcing
• A Regional Bell wanted a DB for their yellow pages- they
published 90 books a year.
• Outsourced a pilot DB to a contractor who built it in 90
days. It was just what marketing wanted.
• For first time, they could compare ads by SIC codes and
size in each of the 90 books – and sell many more ads.
“Your competition has ads in these four books – you are
only in two.”
• Marketing wanted it permanent – based on IT furnishing
a monthly copy of their billing ad file.
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Why the Project Failed
• IT said, “Well, if that is all it is, we can do that – and do it
cheaper than the contractor.”
• IT was given the job. They had to research and buy
software and train their staff to use it.
• Unfortunately, other higher priority projects intervened.
• Four years later the DB had still not been built.
• The proponents in Marketing had moved on.
• The project was cancelled.
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All Major Corporations Outsource
• Marketing databases are outsourced by even the largest
corporations with huge in-house data centers.
• Microsoft, Pizza Hut, Western Union, Nestle. All have
large data centers, but outsource the marketing db.
• Kraft Foods built their huge marketing db in-house. After
a few years, they realized their mistake and outsourced it.
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The Proprietary Data Issue
• These are our customers! We cannot afford to let this
sensitive data outside!
• Question: Where does your company keep its money? In
a safe in the office or in a bank?
• Banks can be trusted to keep corporate funds.
• Reputable service bureaus can keep their client’s
customer data – safe and secure.
• Reputable service bureaus never sell or exchange client
customer data.
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Specialized Software Issue
• A major California Bank built their marketing database
inside.
• They bought D&B data for all businesses in California.
Matched it with their business customers. They got a 4%
hit rate!
• The same two files were sent to a DB service bureau.
They got a 40% hit rate. Why?
• Internal IT did not know how to do merge purge. With
business files, it is very complicated.
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The Speed Issue
• Building inside will take two to three times longer
• Why? Because no one has done it before.
• New software, staff training, staff availability and higher
priorities are the problem.
• Outside, a service bureau has built 20 similar databases.
They can afford to put five skilled people on the job to get
it done fast.
• After that, one or two of them will maintain it.
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The Cost Issue
• It costs twice as much to build inside. Why?
• Service bureaus have the trained staff and the software
and the experience. Building one more marketing
database is no big deal. Costs are spread over 20
databases.
• Inside they will have to recruit and train new workers,
research the software, buy it, and learn to run it. It will be
expensive.
• In house staff often is higher paid, with medical and
pensions.
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The Legacy Issues
• The operational databases were built years ago based on
what was available and important then
• The marketing database must be built today with much
different software.
• Those who are maintaining the existing databases (IT,
website, catalog, POS) may fight any change in their
systems, and resent IT taking functions away from them.
• A service bureau has no legacy issues. There will be no
jealousy. They will get along with everyone.
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The Priority Issue
• How does marketing fit into the organizational hierarchy?
It is seldom at the top.
• Marketing needs to send emails and direct mail to
customers to meet deadlines.
• Once the db is inside, marketing seldom has enough
leverage to get their priority work done
• With a contractor, you can say, “If you miss a deadline
again, we will find another contractor”
• Can you say that to IT?
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The Warehouse Issue
• A data warehouse is a trap. It is managed by a committee
with many different goals
• Marketing is just one of many users. They cannot dictate
what is in the db and when it is updated.
• Successful marketing is dynamic. It needs a forceful
leader who makes quick decisions.
• If the marketing database is part of a gigantic warehouse,
quick decision making is dead.
• Better: put the db at an outside service bureau.
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What Does Your Database Contain?
• A marketing database contains much more than
customers. It keeps leads, prospects, lapsed customers,
unsubscribers and suppression files.
• Marketing databases are built around people or
companies who have bought or might buy.
• In house operational databases are built around
transactions.
• Building in house will present issues: why do we need all
this data? How can we make it balance?
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Firewall Problems
• Anything built inside is protected by a firewall.
• Marketing databases often share data with business
partners, with telesales contractors, with email service
providers.
• As soon as you try to get a collaborative project going,
you will run into firewall problems.
• Make up a list of all the marketing initiatives that you will
have to kiss goodbye if you build your database in-house.
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Data Cleaning Problems
• Most in-house data needs a serious cleanup
– Missing data or erroneous data (Junk in the state or zip fields)
– Undeliverable Addresses
– Name field bad: personalization problems
• Some companies take years to clean up their data
• A service bureau can clean up most data in a few days.
Why?
• Because every day they receive hundreds of lists to be
merge purged. Many of them are bad. Cleanup is what
they do!
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Database Processing Routines
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•
The Coding Accuracy Support System (CASS) improves
the accuracy of delivery point codes, ZIP Codes
CASS
•
Delivery Point Validation. DPV contains all delivery point
addresses serviced by the US Postal Service.
DVP
•
Address Element Correction corrects missing address
elements.
AEC
•
Delivery Sequence File – Second Generation. DSF²
provides info to minimize address delivery errors
DSF2
•
Locatable Address Conversion System. Updates rural
style addresses to city style addresses.
LACSLink
•
NCOALink contains movers names along with an old and
new address.
NCOALink
•
Dynamic Change of Address. Finds new addresses not
found on NCOALink
DCOA
•
Suppression Services. DMA Do not call lists, Prison
addresses, Deceased Screen, Vulgar Screen.
Suppression
Database Address Correction
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Five Times a Day – In-house?
Five times a day
Phone
Activites:
Transactions
Survey Results
Responses
Promotions
Communications
New addresses
New Customers
Outgoing Msg.
Emails
Five times a day
Trawling for
Marketing
Database
New Customers
New Movers
Transations
Responders
No Activity
High Activity
Milestones
Events
Emails
Direct Mail
Personal Contact
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What You Can Do with a Marketing DB
• Store behavior and append demographic data
• Create customer segments, and develop a marketing
plan for each segment.
• Personalize all your email communications to customers
– to build loyalty and sales
• Append demographic data
• Determine customer lifetime value.
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You Will Need Constantly to Score Your File
• A marketing database needs to be scored for:
– Propensity to buy or defect
– Lifetime Value
– Next Best Product
• A marketing database, today, needs to keep clickstream
data on opens, clicks, downloads
• In many cases, it has to be updated in real time– so that
a customer who has bought at 3:00 PM will get emails
about her purchase at 3:10 PM
• Can you do this in-house?
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Segments and Status Levels
Marketing Segments
Status Levels
Business Customers
Gold
Affluent Retired
Young Singles
Silver
Families with Kids
Customer
Marketing Staff
Bronze
Bargain Shoppers
Occasional Buyers
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How One Women’s Chain Segments Their Customers
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Why You Should Out-source Now
• For historical reasons, many companies have separate
marketing databases for retail, catalog and on-line.
• They do not have a total view of their customers.
• There are dozens of companies that support both small,
mid-sized and large marketing databases.
• Develop an RFP and find a good marketing partner as
soon as you can.
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Summary of Outsource Reasons
• Outside is cheaper and
built faster
• Legacy problems easier
solved by outsource
• Outsource has
experience – inside, no.
• You will have priority
outside
• Need for fast updates &
constant file scoring
• Avoid a data warehouse
• Your can tell a contractor
what to do – you can’t do
that with IT
• Proprietary customer data
is a phony issue
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• No firewall problems
• You design it around
customers and prospects
• Data cleaning easier
outside.
Books by Arthur Hughes
Order at www.dbmarketing.com
Contact Arthur: [email protected]
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