Market Watch: Database Marketers Mine for Perfect Customer Segmentation

Critics used to accuse marketing of being more art than science--educated guesswork coupled with gut instinct about what worked and what didn't. But today, applying focused analytics database marketing can bring a little method to the madness. In fact, database marketing has quickly become integral to many organizations' CRM operations. "For a lot of companies it's the soul of CRM," says Eric Schmitt, senior analyst at Forrester Research. "Unlike other forms of marketing, database marketing is both information-based and interaction-based," says Tom Gaither, vice president of marketing for D&B Sales and Marketing Solutions. Now that the technology has become more nimble, the applications of database marketing used in direct mail are being applied to other channels, such as upselling and cross-selling on the Web or in the contact center. According to Jeff Zabin, director of product marketing at Fair Isaac, the term database marketing has evolved over the past few years. "Now, with the Internet and other customer touch points, [it] really encompasses all corners of marketing across the entire customer relationship," he says. The goal now is "to create a multidimensional customer profile." Instead of flying blind, database-marketing practitioners can endlessly fine-tune their approach. "Even better, database marketing quantifies the return on your marketing investment, so you know what worked and what didn't," Schmitt says, adding that it's a perfect embodiment of the "lather, rinse, repeat" approach to technology, with each iteration increasing effectiveness. It's that iterative approach--what David Goodman, director of global marketing solutions at Fair Isaac, calls a learning loop--that distinguishes database marketing from mere data mining. The process allows users "to determine who their most profitable customers are or what the most profitable product to sell them is," Goodman says. "Very quickly, [they're] getting responses that are fed back into tweaking the models and the segmentation strategy." Chris Lietz, vice president of global marketing solutions at Fair Isaac, describes database marketing's appeal as "optimizing the customer relationship to optimize the marketing expenditures." Still, database marketing isn't something that users can attempt on the fly. "If you...build a marketing database without thinking through how you're going to use it, you're going to have a problem," Schmitt says. "You need a blueprint and a plan--and you better invest a lot of effort in that little blueprint." In general, he says, "It's not easy to build a truly cross-channel customer database." But the benefits of doing so can be significant. "When it's done smartly, database marketing is supposed to make marketing less intrusive, not more intrusive," says Alton Adams, managing partner for Accenture's customer insight domain. That, says Fair Isaac's Zabin, is database marketing's singular appeal: delivering "the right offer to the right person at the right point in time across the right channel. Schmitt notes that database marketing is not without its pitfalls--primarily, a skills shortage. Its intricacies require a strong background not just in database administration, but in statistical modeling and analytics--and a reliance on data quality, which has always been in short supply. Bad data leads to bad marketing: You don't want to communicate the same thing to customers twice--or worse, different things to the same customer. Massini Group CEO Kermit Yensen says "the most common mistake in database marketing is operating with incomplete data, pounding the same set of customers or prospects over and over again, while missing an entire other set." He stresses that the underlying data "has to be comprehensive, has to be up-to-date, and has to keep being updated." So for companies that don't have comprehensive, multidimensional data, is database marketing worth the effort? Quite possibly. As Schmitt says, "You can make better decisions on partial info than you can on no info at all." Who's Driving Database Marketing? According to Eric Schmitt, senior analyst at Forrester Research, database marketing vendors fall into two basic categories: software and services. Some of the leading practitioners include: Software: Unica Teradate Aprimo Services: Harte-Hanks Epsilon Acxiom Fair Isaac