How Valuable is Your Database?

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by Steven Spatz

Consider this scenario: Let’s say you own a trendy shoe store. To build store traffic, you’ve printed a post card mailing going to 1,000 people. And now you’ve got two equal stacks of addressed mailing pieces in front of you.

In one stack is 500 cards addressed to people on your own list – the marketing database you’ve built customer by customer. You know where they live and what they buy. If you’ve done your homework, you even know how often they come into your store, their shoe sizes, their favorite shoe colors, and whether they buy socks and shoelaces, too.

The other 500 cards are being sent to prospects – a list you’ve rented. These are people who match the demographics, age group, and who even live in the same zip codes as your customers.

So you mail the cards and watch your mailbox. It doesn’t take a marketing genius to realize you’re going to get a better response from your own customers. But how much better? Twice as many responses? Five times more?

The answer is 10. You’ll get 10 responses from your customers for every one response received from prospects. According to a 2005 study done by the Direct Marketing Association, the average mailing to your house file will pull in an 18% response, compared to a little under 2% for the average rented list.

By any measurement, the names, addresses, emails and other customer info stored in your system is a marketing gold mine, full of rich nuggets of revenue and profit if you know how to extract it. Mining for this gold isn’t easy. It’s hard work to build a list from scratch. And it’s even more work to maintain and grow it. Once you’ve built a strong database, maintaining and enhancing your list needs to be a daily priority.

Think of your customer list like an old fashioned flour sifter. You need to be constantly pouring new names in the top… to replace the old names that inevitably fall out the bottom. Why are you losing some customers? Maybe they’ve moved or changed email addresses. Perhaps they’re not buying what you’re selling for a variety of reasons, from a change in tastes to new spending priorities. And some reasons for customers leaving you are entirely valid and predictable. Children’s clothing stores aren’t going to keep the same customers for more than a few years – kids do grow up!

The point is that your list changes each and every day, so the need for new names is constant. How do you grow the list? Add more names than you lose. Sounds simple, but in many cases it’s easier said than done.

Some businesses lend themselves more easily to data collection. For a lot of companies – from plumbers to lawyers – database information is often exchanged at the first point of contact. But others, like restaurants, or the trendy shoe store in our example above, need to be more creative and direct.

There are a lot of tried and true techniques for list building. Giveaways are always great for getting a big volume of names. Find something with a strong perceived value and you’ll harvest a lot of names. Same with sweepstakes or prize drawings. You have to accept the fact that some people are entering ONLY for the chance to win and they’re really not interested in your products or services.

At the cash register, you should always have a sign up list available for customers to fill out. Let them know you want to communicate special information.

Sometimes being direct is best. Don’t be afraid to simply ask for basic contact information. Make it part of every sales transaction and soon it will be a routine. Even if you have their data on file, confirm that they’re still at the same address or email. If they’re truly interested in what you’re selling they won’t mind parting with this info.

And remember those 500 postcards going to shoe store prospects? Even though the response is a fraction of what you’d get from your customer base, mailing to carefully selected rented names is one of the most important ways to replenish your list. Spending the money to gain one response out of a 100 mail pieces sound expensive. Yet that one new customer gained can have a lifetime value that pays for that mailing many times over. Direct mail prospecting is often the best investment you can make in your business.

The other important consideration is: What information should be on your database? Basic contact info – address, phone number, and email address – is the bare minimum. A note here about list hygiene: format and accuracy are critical to the value of your list. Misspelled names or addresses will lessen its value.

Going beyond the basics, however, is what makes for a great database. Spend the time and effort to gather information that is actionable. Determine what you need to know in order for you to focus and fine tune your marketing efforts.

The kind and types of information collected will vary greatly between businesses. Let’s go back to the shoe store example. In the back room, we notice a surplus of size 10 red high heel boots. Because of our data collection efforts, we know our customer’s shoe sizes, their favorite color and whether they buy boots with heels. Using information on the database, we know exactly who to target with an email or postcard.

At my own house, I’m getting mailings from a chimney sweep who want to work on my three chimneys, a tree surgeon who wants to work on my maples and oaks, and my local lawn mower repair place encouraging me to bring my machine in for a pre-season tune up. All these are examples where database information has helped target their marketing efforts in anticipation of what I’m likely to buy this spring.

While these examples may not apply to your own company, there are some universal data points that are applicable to every industry. The most important of these is a classic direct marketing technique called RFM segmenting.

RFM stands for recency, frequency, and monetary.

Recency. When is the last time your customer purchased? If you have someone who bought shoes last week, they’re much more receptive to a new marketing offer than someone who hasn’t purchased in over a year. Stay in close contact with your most recent buyers. The ability to sort your customers by recency is very important to your marketing efforts.

Frequency. How often do they buy? Does your customer buy twice a year or 15 times? What can you do to entice that two-time buyer to come in more often? It’s a lot easier to gain an incremental sale from an existing customer than from converting that first time buyer.

Monetary. How much did they buy? The woman who spent $500 on high-end shoes is a better marketing prospect than one who only comes in for half-price clearance sales.

You can look at your monetary data in two ways.

  1. How much was the average purchase? Your messages can be tailored to match the spending level. The high spending customer might get ‘Introductory’ announcements on special collections; the lower spender might get sales notices.
  2. How much has she spent over her customer lifetime? The woman who only comes in for sales might have purchased $5,000 worth of shoes over a long period of time. She’s also an important client who is worthy of your marketing attention.

These are just a few ways you can your database work to promote your business. What you do with your information is only limited by your imagination!

Steven Spatz is the Vice President of Marketing at Disc Makers. Spatz’s 20-plus-year marketing résumé includes management positions with Mattel, Matchbox Collectibles, Hasbro/GI Joe, and Pinnacle Orchards.

6 thoughts on “How Valuable is Your Database?

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  5. Thanks for your comment, Annmarie. I love the example about the lawn service guy who took the time to really personalize his response! And I agree 100% — the more relevant information you can append to your database, the more powerful it becomes!

  6. One word: fabulous! Regardless of market, as you said, the ability to get the most out of your database is so critical to the success of any business and its reach in the respective market. RFM is truly the time-honored (and proven) way to figure it all out. I see so many smaller businesses, either within my client base or who contact me about their services, fail at identifying, qualifying and quantifying the need or relevancy of said campaign which ends up with not-so-great consequences on their businesses.

    A so-called “So-so” customer base can become a dynamite customer base if, even with basic customer information, a business can become creative with their additional information gathering. I am more attracted to businesses who, by looking back at my profile information or ordering information, created relevant “solutions” (BOGO, coupons, new product intro emails or mailings) that catch my attention than those that I receive the usual “hey, got a deal for you!” promo from.

    A lawn service in my area went so far as to do a drive-by (I saw them) through my neighborhood and send me a packet a week or two later about what was wrong with my lawn (I’m a gardener, so I knew their information was correct based on my own research prior to the drive-by) and what solutions might be available to remedy the situation. Had I not already taken care of the problem myself, I would have seriously considered calling them. They didn’t guess or send a general “neighbors like yours blah blah”, they targeted an area, did their homework – in this case – by doing visuals of the lawns, and based on their expertise targeted the issue and provided ideas.

    This may be a bit drastic, but I don’t think it’s too far off from what you are trying to say in your blog about lists and how to get the most bang for the buck out of them.

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