Cheat Sheet: Is Your Database Marketing Ready?

Many data-related projects end up as big disappointments. And, in many cases, it is because they did not have any design philosophy behind them. Because many folks are more familiar with buildings and cars than geeky databases, allow me to use them as examples here.

Many data-related projects end up as big disappointments. And, in many cases, it is because they did not have any design philosophy behind them. Because many folks are more familiar with buildings and cars than geeky databases, allow me to use them as examples here.

Imagine someone started constructing a building without a clear purpose. What is it going to be? An office building or a residence? If residential, for how many people? For a family, or for 200 college kids? Are they going to just eat and sleep in there, or are they going to engage in other activities in it? What is the budget for development and ongoing maintenance?

If someone starts building a house without answering these basic questions, well, it is safe to say that the guy who commissioned such a project is not in the right state of mind. Then again, he may be a filthy rich rock star with some crazy ideas. But let us just say that is an exceptional case. Nonetheless, surprisingly, a great many database projects start out exactly this way.

Just like a house is not just a sum of bricks, mortar and metal, a database is not just a sum of data, and there has to be design philosophy behind it. And yet, many companies think that putting all available data in one place is just good enough. Call it a movie without a director or a building without an architect; you know and I know that such a project cannot end well.

Even when a professional database designer gets involved, too often the project goes out of control—as the business requirement document ends up being a summary of
everyone’s wish lists, without any prioritization or filtering. It is a case of a movie without a director. The goal becomes something like “a database that stores all conceivable marketing, accounting and payment activities, handling both prospecting and customer relationship management through all conceivable channels, including face-to-face sales and lead management for big accounts. And it should include both domestic and international activities, and the update has to be done in real time.”

Really. Someone in that organization must have attended a database marketing conference recently to get all that listed. It might be simpler and cheaper building a 2-ton truck that flies. But before we commission something like this from the get-go, shall we discuss why the truck has to fly, too? For one, if you want real-time updates, do you have a business case for it? (As in, someone in the field must make real-time decisions with real-time data.) Or do you just fancy a large object, moving really fast?

Companies that primarily sell database tools often do not help the matter, either. Some promise that the tool sets will categorize all kinds of input data, based on some auto-generated meta-tables. (Really?) The tool will clean the data automatically. (Is it a self-cleaning oven?) The tool will establish key links (by what?), build models on its own (with what target data?), deploy campaigns (every Monday?), and conduct result analysis (with responses from all channels?).

All these capabilities sound really wonderful, but does that system set long- and short-term marketing goals for you, too? Does it understand the subtle nuances in human behaviors and intentions?

Sorry for being a skeptic here. But in such cases, I think someone watched “Star Trek” too much. I have never seen a company that does not regret spending seven figures on a tool set that was supposed to do everything. Do you wonder why? It is not because such activities cannot be automated, but because:

  1. Machines do not think for us (not quite yet); and
  2. Such a system is often very expensive, as it needs to cover all contingencies (the opposite of “goal-oriented” cheaper options).

So it becomes nearly impossible to justify the cost with incremental improvements in marketing efficiency. Even if the response rates double, all related marketing costs go down by a quarter, and revenue jumps up by 200 percent, there are not many companies that can easily justify that kind of spending.

Worse yet, imagine that you just paid 10 times more for some factory-made suit than you would have paid for a custom-made Italian suit. Since when is an automated, cookie-cutter answer more desirable than custom-tailored ones? Ever since computing and storage costs started to go down significantly, and more so in this age of Big Data that has an “everything, all the time” mentality.

But let me ask you again: Do you really have a marketing database?

Let us just say that I am a car designer. A potential customer who has been doing a lot of research on the technology front presents me with a spec for a vehicle that is as big as a tractor-trailer and as quick as a passenger car. I guess that someone really needs to move lots of stuff, really fast. Now, let us assume that it will cost about $8 million or more to build a car like that, and that estimate is without the rocket booster (ah, my heart breaks). If my business model is to take a percentage out of that budget, I would say, “Yeah sure, we can build a car like that for you. When can we start?”

But let us stop for a moment and ask why the client would “need” (not “want”) a car like that in the first place. After some user interviews and prioritization, we may collectively conclude that a fleet of full-size vans can satisfy 98 percent of the business needs, saving about $7 million. If that client absolutely and positively has to get to that extra 2 percent to satisfy every possible contingency in his business and spend that money, well, that is his prerogative, is it not? But I have to ask the business questions first before initiating that inevitable long and winding journey without a roadmap.

Knowing exactly what the database is supposed to be doing must be the starting point. Not “let’s just gather everything in one place and hope to God that some user will figure something out eventually.” Also, let’s not forget that constantly adding new goals in any phase of the project will inevitably complicate the matter and increase the cost.

Conversely, repurposing a database designed for some other goal will cause lots of troubles down the line. Yeah, sure. Is it not possible to move 100 people from A to B with a 2-seater sports car, if you are willing to make lots of quick trips and get some speeding tickets along the way? Yes, but that would not be my first recommendation. Instead, here are some real possibilities.

Databases support many different types of activities. So let us name a few:

  • Order fulfillment
  • Inventory management and accounting
  • Contact management for sales
  • Dashboard and report generation
  • Queries and selections
  • Campaign management
  • Response analysis
  • Trend analysis
  • Predictive modeling and scoring
  • Etc., etc.

The list goes on, and some of the databases may be doing fine jobs in many areas already. But can we safely call them “marketing” databases? Or are marketers simply tapping into the central data depository somehow, just making do with lots of blood, sweat and tears?

As an exercise, let me ask a few questions to see if your organization has a functioning marketing database for CRM purposes:

  • What is the average order size per year for customers with tenure of more than one year? —You may have all the transaction data, but maybe not on an individual level in order to know the average.
  • What is the number of active and dormant customers based on the last transaction date? —You will be surprised to find out that many companies do not know exactly how many customers they really have. Beep! 1 million-“ish” is not a good answer.
  • What is the average number of days between activities for each channel for each customer? —With basic transaction data summarized “properly,” this is not a difficult question to answer. But it’s very difficult if there are divisional “channel-centric” databases scattered all over.
  • What is the average number of touches through all channels that you employ before your customer reaches the projected value potential? —This is a hard one. Without all the transaction and contact history by all channels in a “closed-loop” structure, one cannot even begin to formulate an answer for this one. And the “value potential” is a result of statistical modeling, is it not?
  • What are typical gateway products, and how are they correlated to other product purchases? —This may sound like a product question, but without knowing each customer’s purchase history lined up properly with fully standardized product categories, it may take a while to figure this one out.
  • Are basic RFM data—such as dollars, transactions, dates and intervals—routinely being used in predictive models? —The answer is a firm “no,” if the statisticians are spending the majority of their time fixing the data; and “not even close,” if you are still just using RFM data for rudimentary filtering.

Now, if your answer is “Well, with some data summarization and inner/outer joins here and there—though we don’t have all transaction records from last year, and if we can get all the campaign histories from all seven vendors who managed our marketing campaigns, except for emails—maybe?”, then I am sorry to inform you that you do not have a marketing database. Even if you can eventually get to the answer if some programmer takes two weeks to draw a 7-page flow chart.

Often, I get extra comments like “But we have a relational database!” Or, “We stored every transaction for the past 10 years in Hadoop and we can retrieve any one of them in less than a second!” To these comments, I would say “Congratulations, your car has four wheels, right?”

To answer the important marketing questions, the database should be organized in a “buyer-centric” format. Going back to the database philosophy question, the fundamental design of the database changes based on its main purpose, much like the way a sports sedan and an SUV that share the same wheel base and engine end up shaped differently.

Marketing is about people. And, at the center of the marketing database, there have to be people. Every data element in the base should be “describing” those people.

Unfortunately, most relational databases are transaction-, channel- or product-centric, describing events and transactions—but not the people. Unstructured databases that are tuned primarily for massive storage and rapid retrieval may just have pieces of data all over the place, necessitating serious rearrangement to answer some of the most basic business questions.

So, the question still stands. Is your database marketing ready? Because if it is, you would have taken no time to answer my questions listed above and say: “Yeah, I got this. Anything else?”

Now, imagine the difference between marketers who get to the answers with a few clicks vs. the ones who have no clue where to begin, even when sitting on mounds of data. The difference between the two is not the size of the investment, but the design philosophy.

I just hope that you did not buy a sports car when you needed a truck.

To Gate or Not to Gate, That Is the B-to-B Content Marketing Question

There’s a spirited debate in B-to-B marketing about whether it’s best to give away information (aka “content,” like white papers and research reports) to all comers, versus requiring web visitors to provide some information in exchange for a content download. In other words, to gate your content or not to gate. The debate involves aspects of both ROI and philosophy. Here’s why.

There’s a spirited debate in B-to-B marketing about whether it’s best to give away information (AKA “content,” like white papers and research reports) to all comers, versus requiring Web visitors to provide some information in exchange for a content download. In other words, to gate your content or not to gate. The debate involves aspects of both ROI and philosophy. Here’s why.

I know that plenty of very smart and well-respected Internet marketing experts line up with dear old Stewart Brand, founder of the Whole Earth Catalog, who famously said in 1984 that information “wants to be free.” The underlying assumption there is that people buy from companies that they trust—a valid point, to be sure. Casting a net through free—unimpeded—distribution of content encourages both trust and, perhaps more importantly, wide dispersal and sharing of information. You’ll get to a much bigger audience, who will be educated on the solutions to their business problems, will be grateful for the free info and, one hopes, will think of you when they’re ready to buy. So far, so good.

The problem is that this model—which lives under the umbrella concept known as “inbound marketing”—leaves marketers in a serious quandary. We don’t have any way of knowing who is reading our informative, educational and helpful content. We are left sitting on our thumbs, unable to take any proactive steps toward building relationships with these potential prospects. All we can do is wait for them to contact us and, we hope, ask us to participate in an RFP process, or, more likely, give them more info and more answers to their questions. Is that any way to sustain and grow a business relationship—not to mention meet a revenue target? In my view, it leaves too much to chance.

Let’s look at the numbers. The ROI model for inbound marketing says that distributing the content to a wide audience will eventually result in more sales than gating the content and marketing proactively to a smaller universe. Let’s look at how these numbers might actually work:

To start the conversation, say that wide distribution would put your content in front of 10,000 prospects, via free downloads and pass-along.

In contrast, we might similarly assume that by gating, and requiring some contact information in exchange for the content download, we would only get 1 percent of that distribution: 100 prospects. These are now legitimate inquirers, and we can conduct outbound communications to them. By applying typical campaign conversion rates, we could predict that of 100 inquiries, 20 percent will qualify—producing 20 qualified leads. Of those, we’ll be able to contact 50 percent (or 10), and of them 20 percent will convert, resulting in 2 sales.

But how many sales will we get from the 10,000 with whom have no direct connection? It’s hard to say. When inquiries come in, we can ask where they heard of us, and certainly some will say they read the white paper, or whatever content we put into circulation. But this data tends to be unreliable. Inquirers usually don’t remember how they heard of you, or they just make up an answer to get the question out of the way.

This is exactly why business marketers debate the subject with such vigor. We have data, and thus proof, on the gating side. But we only have conjecture on the other. So it boils down to which side you believe. It’s tough to do sustainable marketing on faith.

Myself, I grew up as a marketer in the world of measurable direct and database marketing. So it’s no surprise that I favor the gating side of the fence. I like marketing campaigns that provide predictable results. Where I can stand up in court and show a history of my campaign response rates, conversion rates, and cost-per-lead numbers. And most important, where I can reasonably expect to deliver a steady stream of qualified leads to my sales counterparts, who are relying on me to help them meet their quotas.

So that’s my argument for gating content in B-to-B marketing. I understand the logic of the other side. And I see clearly situations where it makes sense to let the information run free-as a teaser, for example, to persuade prospects to come and get the richer information that is so useful that they’ll be falling all over themselves to give me their name, title, company name and email address. But what about you? Where do you sit in this debate? It’s a biggie.

A version of this post appeared in Biznology, the digital marketing blog.

The Yin and Yang of Dealing with Good and Lousy Customers

For years I used to quote the statistic that a satisfied customer will tell three people, while an unhappy customer will tell 11 people. This was B.I. (before the Internet).

Today, an unhappy customer can go online and reach tens of millions of people around the world with an angry message.

One of the most fascinating figures in modern retailing is Bradbury H. (Brad) Anderson, a Northwestern Seminary dropout who went to work for a small midwestern music store called Sound Music. Over the years, Anderson turned the little shop into electronics behemoth Best Buy, with 1,400 stores across the United States and Canada, $45 billion in sales and 155,000 full- and part-time employees.

The corporate philosophy of most giant retailers is to drive every possible consumer into the store with TV advertising, cents-off coupons, mail shots, special newspaper offers and all the other bells and whistles of marketing wizardry.

But Anderson saw that many of these giants were performing poorly.

Several years ago in analyzing Best Buy’s customer file, he discovered that of the 500 million customer visits a year, 20 percent—or 100 million—were unprofitable.

So he hired on as a consultant Columbia Business School Professor Larry Selden, author of “Angel Customers and Demon Customers: Discover Which Is Which and Turbo-Charge Your Stock.”

It was Selden who came up with the revolutionary theory that a company is not a portfolio of product lines, but rather a portfolio of customers.

Direct marketers have operated on that premise since the 1920s.

Selden divides customers into “angels” and “devils.” Angels are the desirable customers who buy stuff and keep it—the kind of folks worth doing business with.

“The devils are its worst customers,” writes Gary McWilliams in his Wall Street Journal account of Best Buy. “They buy products, apply for rebates, return the purchases, then buy them back at returned-merchandise discounts. They load up on ‘loss leaders,’ severely discounted merchandise designed to boost store traffic, then flip the goods at a profit on eBay. They slap down rock-bottom price quotes from Web sites and demand that Best Buy make good on its lowest-price pledge.”

As with direct marketers, Best Buy carefully analyzes its customer base, spending time and money to lure the angels into the store and eliminate promotional efforts to the devils. It is also enforcing a 15 percent restocking fee for bad actors.

Unlike direct marketers, Best Buy cannot keep these sleaze balls out of its stores. But it can make life difficult for them while, at the same time, giving excellent service to its good customers.

On the other hand, when you have 155,000 employees, not all are smooth schmoozers or judges of people and absolutely “go by the book.” The result, nice folks can have miserable customer experiences and tell the world.

Satisfied Customers vs. Angry Customers
For years I used to quote the statistic that a satisfied customer will tell three people, while an unhappy customer will tell 11 people. This was B.I. (before the Internet).

Today, an unhappy customer can go online and reach tens of millions of people around the world with an angry message.

What triggered this story was the following e-mail forwarded to me last week by a long-time colleague that directly relates to Brad Anderson’s customer angels-and-devils policy.

Dear friends:

I received several copies of this email. My own take on dealing with retailers like this: Use a credit card.

BEST BUY, MY FOOT
Best Buy has some bad policies…. Normally, I would not share this with others. However, since this could happen to you or your friends, I decided to share it. If you purchase something from Wal-Mart, Sears etc. and you return the item with the receipt they will give you your money back if you paid cash, or credit your account if paid by plastic.

Well, I purchased a GPS for my car, a Tom Tom XL.S from ‘Best Buy’. They have a policy that it must be returned within 14 days for a refund!

So after 4 days I returned it in the original box with all the items in the box, with paper work and cords all wrapped in the plastic. Just as I received it, including the receipt.

I explained to the lady at the return desk I did not like the way it could not find store names. The lady at the refund desk said there is a 15% restock fee for items returned. I said no one told me that. I said how much would that be. She said it goes by the price of the item. It will be $45 for you. I said, all you’re going to do is walk over and place it back on the shelf then charge me $45 of my money for restocking? She said that’s the store policy. I said if more people were aware of it they would not buy anything here! If I bought a $2,000 computer or TV and returned it I would be charged a $300 restock fee? She said yes, 15%.

I said OK, just give me my money minus the restock fee.

She said since the item is over $200, she can’t give me my money back!!!

Corporate has to and they will mail you a check in 7 to ten days. I said ‘WHAT?!’

It’s my money! I paid in cash! I want to buy a different brand. Now I have to wait 7 to 10 days. She said the policy is on the back of the receipt.

I said, Do you read the front or back of your receipt? She said well, the front! I said so do I. I want to talk to the manager!

So the manager comes over, I explained everything to him, and he said, Well, sir, they should have told you about the policy when you got the item. I said, No one has ever told me about the check refund or restock fee, whenever I bought items from computers to TVs from Best Buy. The only thing they ever discussed was the worthless extended warranty program. He said, Well, I can give you the corporate phone number.

I called corporate. The guy said, well, I’m not supposed to do this but I can give you a $45 gift card and you can use it at Best Buy. I told him if I bought something and returned it, you would charge me a restock fee on the item and then send me a check for the remaining $3. You can keep your gift card, I’m never shopping in Best Buy ever again, and if I would of been smart, I would of charged the whole thing on my credit card! Then I could have canceled the transaction.

I would of gotten all my money back including your stupid fees! He didn’t say a word!

I informed him that I was going to e-mail my friends and give them a heads up on this store’s policy, as they don’t tell you about all the little caveats.

So please pass this on. It may save your friends from having a bad experience of shopping at Best Buy

It’s true! read it for yourself!!

Takeaways to Consider

  • As a result of this letter, I will think twice about ever shopping at Best Buy.
  • If this letter was forwarded—and re-forwarded—around the world, tens of thousands of wary prospects will drive right past Best Buy make a point of shopping at Wal-Mart, Target or Radio Shack.
  • It is assumed that you analyze your customers every which way to Sunday. The simplest formula in the direct marketing community is recency-frequency-monetary value (RFM). (Other highly sophisticated systems are available and should be looked into.)
  • Divide customers into quintiles, with the top quintile being your caviar and cream.
  • The bottom quintile is very likely costing you money.
  • The object of marketing is to move customers in the second quintile into the first quintile, the third quintile customers into the second quintile and so on.
  • In direct marketing, it is relatively easy to control the bottom quintile by marketing to it with less frequency, but keeping the addresses current so you can make money off of list rentals.
  • In retail, the bottom quintile is a nightmare. It’s tough to keep undesirable customers out of stores. One possibility is to divide the bottom quintile into its own quintile with the bottom two-fifths—the serial returners and shysters whom you do not want as customers—dealt with firmly.
  • This must be handled with great delicacy. Otherwise consumer activist groups can get on your case and create a flurry of poor publicity.
  • When you go to www.bestbuysux.org, you will find that Best Buy owns it and has turned it into a sales pitch for its products and services.
  • You may want to own the following URLs: www.[YourCompanyName]sucks.org and www.[YourCompanyName]sux.org and follow Best Buy’s example.
  • It used to be axiomatic that a happy customer will tell three people; an unhappy customer will tell 11 others. Today, with the Internet, an unhappy customer can tell the entire world.