CHAPTER 1

How Database Marketing Has Changed

But it's not just the stores. It's the social life. The Internet lets ussort ourselves into interest groups and communities that have no relation togeography.

I know dozens of married couples that met through online villages of one sort oranother. Only a few of them met through dating or matchmaking services. Most ofthem were posting on forums. It was as if they had all been invited to an onlineparty, and, liking each other's public conversation, they went off into a cornerand had a long, private chat.

—Orson Scott Card

The purpose of database marketing is the same today as it has always been: tocreate and maintain a bond of loyalty between you and your customers that willlast a lifetime. The goal has not changed, but the methods have. We stillmaintain information about our customers in a database and use it as a basis forour communications with them. In the past we used direct mail, catalogs, andphone calls to communicate. Today we use these plus e-mails, Web sites, cellphone text, voice messages, and social media. These new developments makecommunications much less expensive and more frequent, but they are also muchmore complex. Most companies have found it useful to hire a service bureau tomaintain their database, and an e-mail service provider (ESP) to send their e-mails and cell phone messages.

The process begins with a marketing database that keeps all sorts of informationabout customers: not only what they buy, but their demographics, families,responses, and preferences. Information storage has become much moresophisticated—using relational databases—and much less expensive.Moore's law describes a long-term trend in the history of computing hardware.The number of transistors that can be placed inexpensively on an integratedcircuit doubles approximately every two years. The trend has continued for morethan half a century and is not expected to stop until 2020 or later. This sametrend has affected disk storage and transmission speed and capacity. The resultis that you can afford to retain and use all the information you can collectabout a customer in your marketing programs. The only limitation is humancreative ability and the willingness to devise methods for using the data. Thisis the problem that we address in this book.

The biggest change in database marketing in the last decade has been the arrivalof Web sites, e-mail, and mobile marketing. At first these seemed like agodsend. The main problem with database marketing was the high cost ofcommunications with customers—$600 per thousand messages. You had all thiswonderful information in your database that you could use to buildrelationships, but you were limited, in most cases, to about one letter a monthbecause of the cost. In the last 10 years, with Web sites including socialmedia, e-mail, and the iPhone, you can send messages to your subscribers andcustomers for less than $6.00 per thousand—a cost so low that the deliverycost is inconsequential.

E-mail has become the primary way for companies to communicate with theircustomers. Direct mail is still alive and well, but e-mail is gaining on it. Butthere is a third communication method that is also growing: one-third ofconsumers in both the United States and the United Kingdom are viewing their e-mails on their iPhone or similar mobile devices. The use of mobile e-mail ismost prevalent among younger consumers, with over half of them spending asignificant part of every day glued to their phones. Mobile use is exploding inall directions. All these new communications methods can make use of theinformation in a customer marketing database. Here, at last, is a way to useyour database to build really close relationships with each customer using thedata you have collected. What we had not figured on was that the low cost of e-mail and mobile messages has become a curse because marketers have discoveredthat e-mails are so inexpensive that you can afford to send messages to yourcustomers every week or even every day. The more you send, the more revenue yougain. More and more major corporations in the United States and elsewhere havebeen sending e-mails, and sometimes mobile messages, to all their subscribersall the time.

Subscriber inboxes are overflowing. The big problem is that the messages, whilethey can be and sometimes are personalized, are seldom filled with dynamiccontent based on what we know about each customer. We have these rich databases,but we do not use the rich data that they hold. To use it requires many creativestaff members who dream up the dynamic content. The thought is, "Subscribers whoare over 65 have certain interests, while other subscribers are college studentswho have different interests. We will vary our messages based on this knowledge,and also do that for about a half-dozen other subscriber segments to make ourrelationships richer for them and more profitable for us." This makes a lot ofsense, but few marketers today are doing anything like that. They are blastingidentical content to every subscriber or customer whose e-mail or address theycan get their hands on.

Using the data to target specific customer groups sounds great, doesn't it? Thathas always been the promise of database marketing. We could send dynamic contentwhen we were sending one message a month. We cannot afford to do this today ifwe are sending one message to each person every day. The problem boils down toone simple fact: The lift we get from dynamic content does not seem to be asgreat as the lift we get from frequent communications. You can't afford todo both, so you go with the most profitable.

In the pages of this book, we deal with the ramifications of this tradeoffbetween frequency and dynamic content. There are many solutions, and we pointthem out. To help you understand what is going on today, we present the actualresults of 80 large marketers who together send more than 1.2 billion...