The “accidental database” may be an odd way to describe what is fast becoming a key corporate asset. But in many companies, particularly those which have relied on traditional advertising and sales promotions, that is precisely what they are realising they have.
Over the years, consumers have entered prize draws, promotional schemes or merchandise offers. At the same time, customer data may have been acquired from direct sales, questionnaires or telephone enquiries. As management theory begins to dictate that a customer focus is critical to success, it is these files which can form the basis of a new, data-driven strategy.
John Orsmond, chairman of Advertising Research Marketing (ARM), an integrated response agency, believes economic factors are driving this process just as much as marketing requirements.
“What makes the emergence from the most recent recession so different to previous economic downturns is the availability of IT, putting more distributive and processing power within easier reach of more companies at lower prices,” he says.
By combining data technology with convergent media, companies have recognised that they can get a competitive edge. “The more forward-looking are realising that they must re-equip their organisations to survive in the global information age. The front-runners have already learned that, of all corporate assets, the marketing communications engine is the only resource well suited to the gathering and dissemination of information,” says Orsmond.
High volumes of data are being derived from the growth of direct response TV, which now accounts for 19 per cent of all commercials. Investment in telemarketing in 1995 was about 1bn, according to the Direct Marketing Association (DMA), and spending on computer telephony integration is rising at up to 50 per cent a year. Direct mail, traditionally the spearhead of direct marketing, has grown by 155 per cent in ten years, compared with total advertising and promotional expenditure growth of 115 per cent in the same period.
All of this would mean nothing more than a heap of name and address records if it were not for the way business is rethinking how it operates. At the same time as IT is transforming the handling of customer relationships, business process engineering (BPE) is changing the nature of how business operates.
“Any change as a result of BPE will have an impact on the four key elements of an organisation – use of IT, development of strategy, maximisation of people, and shifting of cultural paradigms – in an integrated formula,” says Gerald Chertavian, managing director of Conduit Communications.
“The end result must not be simply more efficiency, but tangible achievements in terms of customer retention, increased profits, improved competitiveness.”
He believes many companies are using the convergence of these two trends as an opportunity to rethink their business principles. This is having a significant impact on how businesses operate. For marketers, the changes wrought by these processes are dramatic.
One example is a global manufacturer of top branded sports and fashion footwear, which relies heavily on retail distribution. In 1990 the company examined its performance, a declining market position which contributed to losses in 1993 of 68m. It recognised the need to get its decision-makers worldwide working to the same criteria in the same annual periods, with uniformity of procedures.
The solution was to restructure the company around a central sales and marketing communications “information machine”. By centralising information and creating feedback loops from central headquarters, global regions and business units, it has turned the company round and in 1996 reported profits of 105m.
Orsmond, who has been involved in the project, says: “This demonstrates what can be done and the contribution brought directly to the bottom line by information-led strategic development.”
Standard Life recognised a similar need for marketing-based IT when three years ago it realised the need to be more customer-focused. With increasing communication channels, both direct to market and through independent financial advisors, there was a risk of many policy-holders becoming “orphaned”, with no representative responsible for them. Although its financial products performed well, the company effectively sold one policy, then waited for the customer to come back if others were needed.
Despite the extensive policy information it held, and the 550-plus IT department,”we didn’t have any marketing system as such”, says Sandy McPherson, client services manager at Standard Life. “We recognised that if we wanted to communicate effectively, we needed a system. So we mapped out the sort of communications and marketing strateg ies we wanted and then we looked at software products.”
The company is now using Prime Response’s Vantage database package, and hopes to bring it in-house next year. Mc-Pherson says customers should not notice a change, except for better service and more contact. Response op- portunities are provided to allow for an annual review if desired.
“We have a much better picture of which customers are responding, the members of the field force who are working well, if the telemarketing is working well, and how our campaigns perform,” he says.
While many businesses are changing because of the introduction of a central customer database, others are recognising new business opportunities which are only now possible thanks to marketing technology. Music retailer HMV has a 75-year history of selling popular music on the high street. But it realised that, outside of the core 16 to 34-year-old music buyer, there were many over-30s who either had no opportunity to buy or were not at ease in music stores.
Recognising the growing acceptance of home shopping and the affluence of the so-called “baby boomers”, the company set up HMV Direct. According to Glen Ward, its managing director, the company discovered an accidental database internally. “Fortunately at our London, Oxford Street store the customer services department had been offering a mail order service. We had also been collecting names and addresses from promotions and competitions. This gave us a good platform to build on.”
This helped HMV decide on the type of vehicle for its business and how to recruit customers. Mervyn Badiali, business development director at DRS Advertising, which created the catalogue and marketing communications for the initiative, adds that “it enabled us to look very closely at segments and treat them differently”.
HMV had to whittle down 200,000 music CDs to the 1,500 which could be listed and written about in a catalogue. “In the late Sixties, all you needed to know was a few hundred albums,” says Ward.
HMV has trained its telephone staff to talk knowledgeably about the full range, and is now looking ahead at the possibilities of a CD-Rom or Internet service.
Not every client is able to make the move into data-driven marketing, however. Either because they do not have the systems or data or that the cost of maintaining them would be too high. This need not necessarily be a hindrance, since there are external sources which can help.
AIM, the database marketing consultancy, maintains a file on all the independent grocers in the UK, called Tradebase. Manufacturers are turning to it to support more focused marketing activities and reduce wastage. “If a packaged goods company looks at where its products are going, 80 per cent of sales are through multiples, 20 per cent through independents.
“But although that share is small, when you look at how they affect the bottom line, independents can contribute up to 35 per cent of profits,” says AIM’s managing director, Phil Morgan.
But Morgan says companies can go further. “With the depth of data we now have, we can track those outlets which are doing well and growing against those that will be out of business next year,” he says. Offering promotional or field marketing support to the latter would be a waste of time and money.
Not every step towards the information age has to be a strategic one. Quick-fix, tactical gains can be won if the right kind of data is used. One brewery pulled together all its promotional response data and overlaid it with retail outlet information to find a solution to the rise of own-label brands. According to Neal Rimay-Muranyi, sales director of The Database Group, when the company wanted to launch a new, high-alcohol lager, it put together “Operation Scramble”.
Using distribution and consumption information, “it put hundreds of transit vans on the road and hit off-licences with a ‘buy four for the price of three’ offer. It was not direct marketing, it was local support because they knew the penetration of that type of drinker around each outlet, and they could get a higher margin on the product,” he says.
He believes that, “one day, accountants will put databases on the balance sheet as a fixed asset”. In the meantime, many companies are simply stumbling towards customer-based nirvana.
David Whitehead, managing director at TDS Insight, used to be responsible for BT’s business customer database. He says: “In my experience, it is happening by accident, rather than by design.
It is often marketing departments who are the customer champions, because direct marketing is customer-oriented. It gives more of an insight than operations can.”
That may sound like a heavy burden, if re-engineered business processes are to be supported by marketing-driven data. But the upside is that, just as the database puts the customer at the centre of the business, it also makes marketing a core discipline. Any marketers who have heard the word “outsourced” whispered near their office recently should welcome the chance to show just how indispensable they really are.