Transcript Optimal Chapter 1 - Cal State LA

Optimal Database Marketing Drozdenko & Drake, 2002
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Chapter 1
Introduction to
Database Marketing
Concepts
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Chapter Objectives
• Define marketing databases
• Review the environmental trends that help to
explain why the use of marketing databases is
growing at a rapid rate.
• Examine direct/interactive marketing and compare
it to marketing through conventional retail
channels.
• Explore advantages and disadvantages of database
marketing
• Provide a framework for the concepts and
techniques covered in other chapters of the book.
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What Is a Marketing
Database?
A marketing database is a file containing
information about individual
customers or potential customers that
is relevant to the marketing process.
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What Is a Marketing Database?
• This marketing database file can be simple or
sophisticated.
• For centuries, businesspeople recorded customer
information on slips of paper or in notebooks.
• In contrast, companies like American Express and
Macy’s have computer databases that contain
millions of names. Some of these names have
hundreds of pieces of information.
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What is Direct Marketing?
Direct Marketing is an interactive
system of marketing that uses one
or more advertising media to
effect a measurable response
and/or transaction at any location,
with this activity stored on
database.
Direct Marketing Association
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Direct / Interactive Marketing
• The term interactive marketing is often
used interchangeably with direct
marketing. However, interactive
marketing sometimes refers only to
Internet marketing. In this book, we use
the terms interactive marketing and
direct marketing interchangeably.
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Growth in Direct / Interactive
Marketing
• Direct marketing has been increasing at a
rapid rate. According to the DMA (2000), direct
marketing sales revenues are expected to
increase by9.6% from 2000 to 2005.
• This increase is greater than the expected
increase of 5.4% in total U.S. sales during that
same period. U.S. sales revenue attributable
to direct marketing is estimated to reach $1.7
trillion in 2000 and grow to $2.7 trillion in 2005.
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Trends Leading to the Use of
Databases in Marketing
 Greater use of market segmentation
 Emphasis on service and customer relationship
management (CRM)
 Changes in media
 Changes in distribution structure and power
 Lifestyle and demographic trends
 Accountability for marketing actions
 Integration of business functions
 Technological advances
 More informed customers
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Greater Use of Market
Segmentation
• Market segmentation means dividing a market
into smaller pieces based on demographic,
psychographic, or behavioral (purchase)
patterns.
• The marketer takes a diverse (heterogeneous)
market and attempts to find similar
(homogenous) groups of people or organizations.
• Marketing strategies are developed based on the
needs of a target segment.
• A database that can be segmented according to
these target characteristics can be a valuable
marketing tool.
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Emphasis on Service and
Customer Relationship
Management (CRM)
• The increased emphasis on CRM has brought
database marketing to the forefront of many
organizations. A database allows customers’ needs
to be precisely documented and tracked.
• More responsive service increases the probability
of developing long-term relationships with
customers, which leads to repeat purchases. That
is a major advantage to the marketer, because
retaining old customers is usually more profitable
and less costly than acquiring new customers.
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Changes in Media
• Marketers have traditionally reached
customers through media that are today
becoming more and more fragmented.
• Direct marketing, including mail, e-mail,
and telemarketing, can bring targeted
messages to individual consumers and
business customers with very specific
characteristics.
• They have the potential to communicate to
people based on individual needs and
relate these needs to the offer.
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Changes in Distribution
Structure and Power
• Power in the distribution channel has
shifted. No longer are manufacturers in
control of distribution channels, as they
were in the past.
• Now, with the consolidation of retailing on
a regional, national, and even multinational
level, one retailer has much more impact
on the bottom line of a manufacturer.
• In an attempt to maintain direct contact with
customers, manufacturers have developed
their own databases.
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Lifestyle and Demographic Trends
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A number of lifestyle and demographic trends
have moved consumers away from traditional
retailers.
Higher percentage of women in the workforce
Higher percentage of family members working
More child-rearing activities that require parents’
time (e.g., lessons,carpools, sports, trips)
Increasing access to the Internet at home, which
increases the chances of online shopping
Increase in ethnic populations seeking products that
may not be available from local store retailers
Less brand loyalty, driving people to find convenient
alternative sources for products
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Lifestyle and Demographic Trends…
• In response to these trends, marketers will
make more types of products available from
nonstore sources (Internet, mail, TV).
• As more nonstore sources become available,
competition will increase, driving more
consumers away from store retailers.
• Because all forms of direct marketing are
dependent on databases, the use of
databases will also increase.
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Accountability for Marketing
Actions
• Accountability for expenditures is more
prevalent in business today. In publicly held
companies, shareholders are becoming
more sensitive to financial reports.
• Within the organizations, upper-level
managers want to know whether
expenditures on specific promotions (ad
campaigns, trade promotions, etc.) yield an
appropriate return on investment.
• It is often difficult, however, to directly
relate mass media advertising to changes
in sales.
• Marketing databases allow expenses and 16
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revenues to be tracked and evaluated.
Integration of Business Functions
• When all the functional areas of a business work
together (marketing, accounting, finance,
operations, human resources, information
systems, etc.), the organization usually becomes
more effective and efficient.
• Databases facilitate this integration.
• Costs can be clearly documented, and sales
levels can be more accurately forecasted and
monitored to allow for adjustments in production,
inventory, and staffing levels.
• From the financial perspective, sales revenues
from individual items and product lines can be
tracked more closely for better financial planning
and resource allocation.
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Technological Advances
• The computer technology needed for developing
marketing databases has decreased in price and
increased in power.
• Consequently, more organizations have the
financial resources to purchase the hardware and
software necessary to develop a marketing
database.
• In addition, because of the increasing power of
low-cost PCs, smaller organizations can utilize
databases.
• Within the organization, more people have
access to technology and, therefore, can take
advantage of the database.
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More Informed Customers
• Consumers and business customers have
access to substantially more information
now than in the past. Greater product
knowledge brings more critical evaluation
of products and greater consideration of
price.
• With databases, marketing
communications can be more specifically
targeted so that the information matches
the characteristics of the consumer.
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Database Marketing versus
Aggregate (Mass) Marketing
• Aggregate marketing, which is the method
to reach customers through mass media
and traditional retail distribution channels,
does not depend on data from individual
customers.
• Database marketing maintains records of
individual customers.
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How Direct Marketing is Different
Exhibit 1.1
Marketing Database
Data Storage and Analysis
Media
Response
Mail
Phone
TV
Internet
Purchase
Further Contact
Fulfillment
Process Order
Provide info
Sales Contact
Individual Customer
Example of a Retail Channel
Exhibit 1.2
Marketer
Intermediaries
(e.g., wholesalers, brokers)
Retailer
Individual Customer
How Are Customers Reached in a
Distribution System That Uses
Retailers?
• How do customers learn about
products?
• How do marketers learn about the
success (or failure) of marketing
programs?
• How do marketers learn about
customers?
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Does the marketer know anything about the
individual consumer in this example?
Exhibit 1.3
Re-order
Marketer
Intermediaries
(e.g., wholesalers, brokers)
Sale
Retailer
Individual Customer
Re-order
Marketing Communication to the End
Consumer in the Retail Channel
Exhibit 1.4
Marketer
MASS MEDIA
(Print, TV, Radio)
Retailer
Store
Promotions
Individual Customer
Information about the End Consumer
in the Direct Marketing Channel
Exhibit 1.5
Marketer
Marketing
Research
(Anonymous Sample)
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
Individual
Customer
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Disadvantages of Database
Marketing
• Cost Issues
– Cost of database technology
– Cost per customer contact
• Global Markets
– Expansion to some markets limited
• Competition From Traditional Retailers
– Increased efficiencies lower costs
– Difficult to compete in some product categories
• Negative Perceptions
– “Junk mail” and annoying telemarketers
– Privacy concerns
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Framework for
Optimal Database Marketing
This book starts by examining general concepts and
examples of marketing databases and then moves
on to more specific database analysis techniques.
The following areas are covered.
• Strategic review of database development
• Basic technical aspects of the database
• Comprehensive review of data analysis techniques as
related to database segmentation, predictive
modeling, lifetime value and testing
• Databases in Internet marketing
• Current topics related to database marketing: ethics,
the global marketplace, and future trends
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Review Questions
1. In the vignette about Keri Lee, how have databases
benefited her life? Are these benefits substantial or
superficial?
2. What is a marketing database, and why are databases
important to marketers?
3. What are some of the trends that have led to the
utilization of marketing databases?
4. How is database marketing different from aggregate
marketing?
5. What are some of the advantages and disadvantages
of database marketing compared to traditional brick
and mortar marketing?
6. What do you think about the concerns some
consumers have about database marketing? How
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Optimalwould
Database Marketing
Drozdenko & Drake,
2002
you respond
to those
concerns?