Why Databases Fail


There have been many database marketing failures during the past two decades, from which companies have learned what does not work. A few of the reasons are

  • Failure to test a strategy on a small sample before a rollout. Database marketing is particularly adapted to setting up tests, which can prove the validity of any idea before serious money is spent on it. Database marketers know this. Company management usually does not. Pushing for quick profits has led many companies to fail with ideas that could easily have been tested on a small scale first.

  • Failure to set aside control groups. If you are going to spend a million dollars on a group of customer communications designed to boost retention or sales, you always should set aside a group that does not get the communications in order to prove the value of the effort. Many companies still fail to do this. The result, of course, can be disaster. If the economy is going down and your sales are going down, you may assume that your methods are not working. If you set aside a control group, however, you might find that the sales of your test group went down less than those of the control group, proving that your communication program worked, even in adverse circumstances.

  • Failure to develop strategies that work. Database marketing has often worked so well that some people have thought that it was the database and the software that were producing the miracles. It wasn’t. What produced the miracles were strategies that resonated with the particular audiences represented in the databases. The scarcest commodities in any database marketing operation are imagination and leadership: the ability to think up ideas that will work and the ability to sell those ideas to management and apply them. It is a highly competitive world today. Friends and Family, created by MCI 15 years ago, was a wonderfully creative idea for acquiring new customers. It alone made MCI into a giant long-distance carrier. But once everyone else realized what it was and how it worked, it was copied by others, and it no longer had the power it once had. To succeed, you have to constantly come up with new ideas. Some people just don’t understand this. They think that if they build a database and apply expensive software, profits will roll in. This is the reason for the CRM craze that hit the database marketing world in the previous decade. If you read the CRM manuals, it almost sounds as if customer acquisition and retention is a simple matter of building a data warehouse and applying expensive software to it. In general, CRM has been a gigantic failure. We shall return to this subject in the next chapter.

  • Focus on price instead of service. The main reason why customers stop using a product or service is not the product or the price, but the way they were treated by the company providing the product or service. Management always thinks that price is the problem, hoping that through discounts, it can buy some loyal customers. Discounts do not buy loyalty. They reduce loyalty. They reduce margin. They get customers to think about how much they are paying instead of about how much they are getting. A database should not be a way to give away coupons. It should be a way to avoid having to give away coupons because the customers are so happy with the communications and services they are receiving that they will ignore the deep discounts of the competition.

  • Treating all customers alike. Some customers are more loyal and profitable than others. Your database should identify these loyal customers, and your marketing strategy should work to retain them and to encourage others to emulate them. You should also do something to reduce the number of worthless customers on your rolls. If you treat all customers alike, you will never improve your customer mix. A retention budget of $1 million divided by 1 million customers will do very little to change anyone’s behavior. Divide that $1 million among your 100,000 most valuable customers, and you have $10 per customer per year to reward loyalty and encourage retention. You may make some progress. Some company managements do not yet understand this.




The Customer Loyalty Solution. What Works (and What Doesn't in Customer Loyalty Programs)
The Customer Loyalty Solution : What Works (and What Doesnt) in Customer Loyalty Programs
ISBN: 0071363661
EAN: 2147483647
Year: 2002
Pages: 226

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