Chapter 1 Database Marketing
Purpose: to crate and maintain a bond of loyalty between you and your lifetime
Goals haven’t change Methods Have
1. Still maintain customers info and use it to communicate with them
2. Includes communication via direct mail, catalogs and phone calls
Biggest Change Arrival of Websites/ Emails/ mobile marketing
Problem: The lift we get from dynamic content does not seem to be as great as the lift
we get from frequent communications
Today on top of those methods we use NEW ways including emails, web sites, cell text,
voice messages and social media
Marketing Databases keeps all sorts of info about customers:
What they buy
• Limitation: human ability and willingness to devise methods for using data
• Email has become the primary way for communicating with customers
The Old Corner Grocer
Back in the day before there were supermarkets, groceries were brought in small corner
stores and the owner would be at the entrance greetings customers personally. This built
the loyalty of their customer by recognizing them by name, by greeting them, by knowing
What Consumers Want
1. Recognition: to be seen as individuals called by name and recognize desires and
2. Service: want thoughtful service from knowledgeable people who has access to
database info to know what customer they are talking to
3. Convenience: People don’t have time; they want to do business from where they
are by cell, landline or web companies that remember info.
4. Helpfulness: to make the customers’ lives easier
5. Information: Customers use internet and technical info is important
6. Identification: people like to identify themselves with their products.
Customers today want recognition, service, friendship and information.
2 kinds of DATABASES
1. Operational Database is used to process transactions and get monthly
statements and is run by IT
For a Cataloger, database is used to process orders, charge the transactions,
arrange shipping and handle returns and credits
For a BANK operational database process checks, deposits, maintains balance
and creates statements
2. Marketing Database: get data from operational database and consist of a
summary of monthly transactions
Data from preferences and profiles of the customers
Response history from direct mail and emails LTV and RFM analysis creating customer segments
Relationship Buyer and Transaction Buyers
Try to engage in comparison-shopping for every transaction. They read ads,
consult goggle and make calls. NO LOYALTY.
Service is not important PRICE is everything
Database Marketing not effective here only DISCOUNTING works
Customers for whom database marketing was invented
Looking for dependable supplier who cares about our needs, who remembers
what we bought in the past and who takes interest in their business and treats
them like individuals
Decided to built a customer marketing Database, to measure performance of
retail customers vs catalog customers
Proved that he strongest variable for not shopping the catalog was exposure to
bad service (out of stock)
Sears set up a RFM system, customers who acquired a Sears card, bought once
and never bought again
WEEK ONE OVERVIEW OF BUSINESS INTELLIGENCE AND DATABASE
CHAPTER ONE – How Database Marketing Has Changed
Today, we use direct mail, catalogs, phone calls, e-mails, web sites, cell phone
text, voice msgs and social media.
These new developments make communication much less expensive and more
frequent but they are also much more complex.
E-mail has become the primary way for companies to communicate with their
Direct mail is still alive and well, but email is gaining on it – third communication
method = mobile use, exploding in all directions.
Subscriber inboxes are overflowing.
BIG problem: the msgs can be and sometimes are personalized, but they are
seldom filled with dynamic content based on what we know about each
customers. We have rich databases but we do not use the rich data that they hold – it
requires many creative staff members who dream up dynamic content.
The problem boils down to one simple fact: the lift we get from dynamic content
does not seem to be as great as the lift we get from frequent communications.
What Customers Want
Companies are discovering what their customers want and selling them that – its
What do customers want?
Whom Do They Listen To?
Customers listen to other customers.
Young people participate in Facebook and Twitter, exchanging information that
suppliers of products and services cannot control.
Databases retain: email addresses, complete purchase history, CS calls,
complaints, returns, inquiries, promotions, results of surveys
Household demographics (age, income, # of children)
The profitability RFM (Regency, Frequency, Monetary Analysis) code, and
Two Kinds of Databases
An operational database is used to process transactions and get out the monthly
For a cataloger: is used to process the orders (charge credit cards, shipments,
For a bank: is used to process checks and deposits, maintain balances, and
For a telephone company: is used to keep track of telephone calls made and
arranges the billing for them.
An marketing database gets its data from the operational database, it consist of a
summary of monthly transactions.
Gets its data from:
o Preferences and profiles.
o Promotion and response history.
o Appended data from external sources.
o Lifetime value and RFM analysis.
o Churn and next-best product. Relationship Buyers and Transaction Buyers
Transaction buyers rep a major segment of any market – try to engage in comparison-
shopping for every transaction.
The past has no meaning, have absolutely no loyalty – question is what is the
price today, they will shift suppliers for a few pennies difference.
Database marketing may be ineffective here – only discounting will work.
Relationship buyers are the customers for whom database marketing was invented for,
they are looking for a dependable supplier who will:
o Care about their needs.
o remember what they bought in the past.
o Takes an interest in their business.
They recognize that if they do switch suppliers they would lose something that they
value very highly – the relationship they have built up with a dependable supplier.
E-mail Marketing Needs to Catch Up
E-mails are so inexpensive that most marketers send millions of identical
messages on a daily basis to subscribers who are overwhelmed and annoyed by
their own overflowing inboxes.
CHAPTER TWO - The “Vision Thing”
The Central Role of Marketing
Industrial Revolution was possible: the expansion of the market system and
Adam Smith: “The division of labour is limited by the extent of the market.”
Where the market is small, the gains from the division of labour are
The larger the market, the more efficiencies are possible, the greater productivity,
the greater profits and the greater affluence.
Marketing is key: it is not something that happens after the goods are produced.
Marketing is the reason the goods are produced in the first place.
The American Market
The 1900 to the present time, the US has had the largest single market on earth. The US has spent the last 200 years breaking down barriers, building waterways,
railroads, telegraph, telephone and electronic communications systems,
highways, links all the parts of our market together in a freely competitive way.
The result has been the greatest outpouring of production, affluence, and
personal freedom ever known.
The driving force has been free competitive market activity – each entrepreneur
trying to satisfy the competitive market.
The Growth of Mass Marketing
From 1950 to 1980 mass marketing predominated, the growth of television built
on the solid foundation of national print ads and radio to create mass audiences
for national advertising.
Mass marketing makes mass production possible.
One result of this productive system is that the middle class has grown from 15%
to 86% of the population in 2011.
We have all gained, our basic needs are met, we want something more.
What the Market Consists of Today
Our market is still expanding.
Customers became owners of the economy.
New products were created at an accelerating rate.
Why the US Economy Is So Successful
The US has been going thru an unprecedented boom that never seems to stop.
• Freedom to Produce.
• Freedom to Market: American stores are run for the customers, we keep the
stores open at all hours and all days to make customers happy.
• Low Inflation Resulting from Our Trade Deficit with the Rest of the World:
American bought more every year from abroad than foreigner’s bough from us
(them this fucker is American). Low inflation is central to our success.
• High Investment: dollars owned by foreigners in NY banks, dollars invested in
American business: stocks, bonds, mutual funds etc.
• Customers Buy Products to Reduce Uneasiness: people purchase products
because they think that their life will be better with the products than without
• The Value of Products Is Subjective: The market value of products and
services is determined primarily by the customers.
• In Free Market Exchanges, Both Parties Make a Profit: Each party to a trade
gives up less than he or she gets.
• Purchase Decisions Cause Internal Conflicts in Potential Customers’
Minds: Customers are torn between their desire for a product/service on one
hand and their desire to retain their money supply.
• The Internal Struggle Affects Different Sides of The Brain: The left hemisphere controls our language – where we do mathematics and
calculate prices and bank account balances.
The right brain constructs patterns and recognizes relationships, it is most
efficient at visual and spatial processing – where we visualize what life would be
like if we acquire a new product, source of imagination and desire.
• Advertising Can Appeal to Either Side of the Brain: “ buy one get one free”
out pulls “50 percent off” because:
Wanting a product is a right-sided brain function, calculating money is left-side
Marketers are faced with the dilemma, should their message be left or right brain.
• Products Tend to Become Commodities
• There is a problem with both marketing approaches today, prices rush to match
every price move of the competitor.
• Consumers know that price changes are temporary and will be corrected soon by
The Importance of Time
• People have less and less time available for shopping (or for anything).
• Customer Profit = a(utility of product) + b(value of brand) – c(money cost) –
• The letters a, b, c and d represent weights which vary with each customers,
• Lower-income customers place a higher value on c and a lower value on d.
• Busy people place highest value on d.
• Providing Information: We live in a world in which customers have as much
information about products as the suppliers do, this is a result of the internet.
Database Marketing Arrives
• Sometime around 1985, database marketing grew out of direct mail marketing
when marketers began to realize that they could bring back some of the loyalty
and relationships with customers that had been lost whe