Transcript Standard Why Fail Speech- 5 Dec 00

Why Databases Fail
Nine Deadly Mistakes that will ruin your chances for
Success.
National Center for Database Marketing
Orlando December 5 2000
3:30 – 4:30 PM
Arthur Middleton Hughes
VP Strategic Planning
M\S Database Marketing
www.msdbm.com
 Customer
Management
 Internet Services
Competitive Advantage Through Advanced Technology
Lack of a Marketing Strategy
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Building a database is easy
Making money with a database is hard
Most people don’t know that
Companies Lack Marketing
Strategy
To develop a relationship program, you still have to put
individuals into groups, and develop products and
strategies that will keep them loyal. That, in my
opinion is where companies have the most difficulty.
Even when you say to them, “I can help you to identify
your key customer segments.”
They respond, “Well, great. But tell me, what to do with
them once they are identified. How do I manage each
segment?”
Marketers are not yet sophisticated enough to know
what to do with the information.
-- Stephen Shaw - VP Spectrum Decision Sciences
How to develop a strategy
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Collect data on your customer’s
purchases, demographics and lifestyle
Build a database that permits ad-hoc
analyis
Construct a lifetime value table
Figure out what motivates your
customers
Two Kinds of Database People
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Constructors
People who build databases
Merge/Purge, Hardware, Software
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Creators
People who understand strategy
Build loyalty and repeat sales
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You need both kinds!
Examples of Profitable
Strategies
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User Groups
Newsletters
Surveys and Responses
Bank Loyalty Programs
Customer and Technical Services
Membership cards and status levels
Event Driven Communications
Event driven communication:
Ridgeway Fashions
Dear Mr. Hughes:
Leesburg, VA 22069
I would like to remind you that your wife Helena’s birthday is
coming up in two weeks on November 5th. We have the perfect gift
for her in stock.
As you know, she loves Liz Claiborne clothing. We have an
absolutely beautiful new suit in blue, her favorite color, in a
fourteen, her size, priced at $232.00.
If you like, I can gift wrap the suit at no extra charge and
deliver it to you next week, so that you will have it in plenty of
time for her birthday. Or, I can put it aside so you can come in to
pick it up. Please call me at (703) 754-4470 to let me know which
you’d prefer.
Sincerely yours,
Robin Baumgartner
Basic Strategy Rule:
Put yourself in customer shoes
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Say: “What would I want to be on this
database? What’s in it for me?”
If you can’t come up with a good
answer, the database will fail
Mistake: Focus on Price
instead of Service
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Database marketing builds loyalty.
Discounts do not build loyalty.
Do not use the database to provide
discounts.
Use the database to provide dialog,
recognition and service.
Customers today seek more
than low prices
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Recognition
Service
Information
Convenience
Helpfulness
Example: Quaker Direct
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Budget: $18 Million. Coupons to 20
million “targeted households.”
Quaker goal: “real one-to-one bonding
with consumers”.
Cost: four times as much as FSI’s.
Why failed: Coupons do not build
relationships.
Example: Kraft Crystal Light
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Million club members receive quarterly
newsletter.
Catalog: Watches, mugs, jogging suits,
with Crystal Light emblem.
Theme: fitness, exercise, weight loss,
diet.
Why succeeded: Club based on valid
idea, not just on discounting product.
Mistake: Getting the
Economics Wrong
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Database marketing costs money
Success is not assured
How can you be sure you will succeed?
Compute customer lifetime value table
Use your table to predict the success of
various possible strategies
Example: Citicorp Reward
America
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Frequent shopper program for
supermarkets
Goal: sign up 40% of all chains fast
Profit idea: sell data to manufacturers
Budget: $200 million -- 174 employees
Failure: Citicorp Reward
America
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Program cancelled. Employees fired.
Why?
Manufacturers didn’t buy the names.
Failure to test on small scale first.
Computers choked on the data.
The economics were wrong.
This year many Dot Coms
have crashed and burned
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April 1998: Priceclub.com airline tickets.
Founds Webhouse Club.
Sept 1999 uses system for groceries
Aug 2000 uses system for gasoline
“There is no category we won’t be in”
said Jay Walker founder.
Oct 2000 Webhouse shuts down. Loss
$300 million plus 375 employees.
Today, all web groceries are
on the rocks..
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Supermarket profits are 1% of sales.
If you add the cost of web ads, taking
orders, picking, boxing and home
delivery, there is no profit left, only loss
On the way out?
What we have learned
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Profits are not only important, they are
everything.
The web is another channel, not the only
channel
The web is more of an ordering medium than
a selling medium
The web will support but never replace direct
mail, catalogs, retail stores, Malls, Brand
Names, TV, Newspapers, Magazines, Radio or
Books.
Mistake: Too Big and
Excessively Delayed
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Database should be built in one year or
less.
DB Marketing builds loyalty and sales -but only when it is up and running.
If your plan requires more than a year,
maybe your plan is too complicated.
Start small. Build Small. Learn as you
go. Add to it later.
Why the Chrysler Database
Failed
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25 million is too big
Start with 100,000
When it works, go to 500,000
The database was owned by the Legal
Department! It was for recalls.
Marketing should have their own
database.
Mistake: Failure to link your
database to the internet
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Your database contains customer
information: purchases, preferences,
contact names, etc.
Customer service has to have this info
when they talk on the phone.
Your web site must have this info when
you receive customers as visitors.
Why the web is vital to your
database
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People will look you up and compare
you with others
Customers want to be treated like
customers, not prospects
They want inside information
What do you have to do?
Now, this is recognition!
Welcome Back, Arthur!
Immediate Feedback!
30 seconds later: Email
Create an Extranet
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Give every customer an ID and password
Welcome them when they come with their
own page
Give them access to your entire product list,
technical information, order status
Let them know that you care about them,
and remember their orders and preferences
How the Web is changing
Customer Service
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1980s: toll free numbers
Thousands of agents reading screens
Heavy cost: phone call and agents
2000: let the customers get their own
information
No cost for phone or for agents
Customers like it better!
Letting them go behind the
counter
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Open your entire company to your
customers
Let them find what they want themselves
It is cheaper for you, and customers like it
better.
How Amazon saves millions
How FedEx Saves Millions
Mistake: Building models
instead of relationships
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Models work well for prospects.
Demographics sometimes help to
predict behavior
With customers, you already know
behavior.
The goal with customers it to build
profitable relationships
Customer Models can be
useful
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You can use models to predict churn
You can recommend the “next product”
You can segment by profitability
Using that and lifetime value, you can
create a risk/reward matrix
Risk vs Lifetime Value Matrix
LTV
High
Medium
Low
Probability of Leaving Soon
High
Medium Low
Priority A Priority B Priority C
Priority B Priority B Priority C
Priority C Priority C Priority C
But don’t forget your primary
mission: build relationships
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Customers will not be retained by the
model
Retention comes about through
excellent service, recognition, and
relationships.
Don’t let the model separate you from
your customers
Mistake: Treating all
customers alike
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Loyal customers are more profitable
than new or disloyal customers
Loyalty can be built and maintained
Loyalty maintenance is easier if you
begin with loyal people
Loyalty can be measured: it is the
lifetime value
Segment customers by
profitability
Profit by Customer Segment
79.67%
80.00%
Profitability
60.00%
40.00%
24.82%
15.83%
20.00%
1.52%
-21.83%
2
1
0.00%
-20.00%
-40.00%
5
4
3
What Fleet Learned
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Half of all their customers are
unprofitable
Half of all new acquisitions will never
turn a profit for Fleet
They cannot profitably market products
to their top customers
They must concentrate on retention
Don’t Treat All Customers
Alike
Effect of Targeting Customer Relationship Building Programs by LTV Quintile
Quintile
LTV
Equal Mktg. New LTV Targeted Mktg. New LTV
5
4
3
2
1
Average
$531
$344
$188
$66
$12
$228
Firm Value $45,600,000
$15.00
$15.00
$15.00
$15.00
$15.00
$15.00
$611
$396
$216
$76
$14
$263
$3,000,000 $52,600,000
$40.00
$20.00
$10.00
$5.00
$0.00
$15.00
$743
$413
$207
$69
$12
$289
$3,000,000 $57,800,000
Mistake: Failure to change
organization and compensation
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To build profitable relationships, you
must become customer centric
That means creating customer
segments with segment managers
Retention is a function of the number of
products owned.
Most companies are product silos
Marketing to Customer
Segments
Your Best Customers 80% of Revenue
Your Best Hope for New
Gold Customers
1% of Total
Revenue
GOLD
Move Up
These may be losers
Spend Service
Dollars Here
Spend Marketing
Dollars Here
Reactivate or
Archive
Why customer segments
matter
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The bottom 20% are unprofitable
The top 20% are 80% of profits
Long term customers have high
retention, spending, referral rates
To get the benefits, you must manage
each customer segment
What Sears Canada Found
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Old system: VP for Catalog, VP Retail
Fiercely competitive
Customers who bought in both channels
spent 2 X single channel shoppers
How to get people to shop both
channels and increase sales?
What Sears Canada Did
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Created single VP for Catalog/Retail
Moved Catalog desk to front of store
Put direct catalog phones in every retail
dept. of every store with catalog pages
Result: added another huge superstore
with no bricks and mortar
Largest store in Sears chain
What The Limited Does
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Creates nine customer segments
Has a manager for each segment
Spends 95% of marketing budget on
the top 45%
Spends 5% of marketing budget on the
bottom 55%
Proves their returns by tests & controls
Mistake: Lack of a forceful
leader
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Success requires directing the activities
of many internal and external units
MIS, Customer Service, Tech Support,
Telemarketers, Service Bureau, Direct
Agency, Fulfillment, Market Research
Database Marketers must be leaders
Rules for success
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Put yourself in your customer’s shoes
Build a lifetime value table
Build a database team
Think small, and think fast
Keep your eye on the bottom line
10866 Wilshire Blvd., Suite 370
Los Angeles, CA 90024-4354
Phone (310) 208-2024
Fax (310) 208-5681
http://www.msdbm.com