Nearly ten years ago, I interviewed the marketing director of a major bank who was bursting with pride over his new computer system. With the evangelical fervour of a man who had just discovered the wonders of information technology, he told me in hushed tones that the bank could now find the answer to its biggest unsolved question: how many customers it had.
Yes, it was only in the late Eighties that Britain’s banks installed computer systems that identified customers by name. Until then, all they knew was how many separate accounts there were – but they had no idea how those accounts related to actual consumers.
If the marketing director in question thought being able to count his customers was revolutionary, imagine how he must have felt when he first came across a lifestyle database.
Lifestyle databases exploded onto the British scene in the late Eighties promising – and delivering – revolutionary new ways to reach customers.
Using information collated from millions of consumer surveys, the big lifestyle database companies have managed to put together information on pastimes, employment, car purchasing habits, favourite brands, sports – and so the list goes on.
Lifestyle databases were the esoteric marketing superweapon of the time. They offered UK marketers previously unheard of targeting ability, which would allow them to mail selectively those sections of the community which were more likely to buy their products. A sports shoe company, for example, could identify households where people played sports: a breakfast cereal manufacturer could identify kitchens where its products were consumed.
Furthermore, if developed, marketers could use lifestyle data to segment and profile their own existing customer records, identify the high spenders, and then go out and look for other consumers who had similar behaviour patterns.
But marketing technology has moved on over the past ten years, and lifestyle segmentation and profiling has become humdrum and run-of-the-mill – even commoditised.
The new catchphrase tripping off the tongues of marketing gurus is one-to-one marketing. This is using detailed knowledge of individual consumer’s habits, drawn from the marketer’s own database of existing customers, to tailor products and services directly to each one – so they spend more with you. Why bother wasting money on acquiring new customers when it is so much cheaper to milk the ones you already have?
Jon Epstein, a director of customer-driven marketing consultancy Results R Us argues: “The only role for lifestyle data is prospecting for new customers, and this is only viable if the source of business with existing customers has dried up, or the data on them has not been collected. It costs 50 times more to acquire a new customer than it does to sell to an existing one at the right time. Direct marketing to known customers on the basis of accurate information about their buying needs will dramatically increase profitability.”
Epstein accepts that lifestyle databases still have something to offer, saying: “Don’t get me wrong – I’m not claiming they’re dead as a dodo.”
But he believes that marketers should look first at the behavioural data they already have in their transaction and contact databases, before going to the lifestyle companies.
He adds: “What someone did has got to be more powerful than how they replied to a questionnaire to a third party.”
Epstein bases his observations on research undertaken by himself and Glen Peters of Price Waterhouse, with over 150 senior marketing professionals at the Marketing Forum in the autumn of 1996. He argues that marketing professionals should know that effective marketing is not just about delivering the right products and services at the right price, but also delivering to customers who are ready and who want to buy them.
He says: “Achieving this demands that customers are treated individually, and not as stereotypes defined by ageing and aggregated geographic or lifestyle data. This research demonstrates an overwhelming recognition that customer-driven marketing is central to improving business performance. No longer can customers be treated generically. Rather, marketing must address customers individually according both to their needs and to their value to the business.”
But Epstein admits: “The same research also proves that few businesses will adopt the approach which their marketers know to be right.” Indeed, a straw poll he conducted recently among representatives of major lifestyle and geodemographic data providers at a recent DMA seminar suggests that the suppliers themselves believe 70 per cent of marketers are failing to use data properly.
Marc O’Regan, head of data consultancy at direct marketing agency Barraclough Hall Woolston Gray, argues that lifestyle databases have become far richer and more useful over the past decade, and that marketers have a long way to go before wringing the last drop of usefulness out of them.
He adds: “Lifestyle data has been an invaluable tool to help us understand customers and prospects better, and target more effectively. The volume of respondents, the richness of data held on them and the sophistication of the ways in which the data is exploited have grown tremendously. My first contact with lifestyle data in 1987 involved intuitive selections that delivered relatively small universes – a far cry from using the latest techniques, such as Chaid or regression models, which can sift through millions of records to find the right consumers.”
And O’Regan argues that the lifestyle database market has room to grow. He observes: “While rental of lists from the lifestyle databases is now a routine aspect of database marketing, the data-tagging market – where lifestyle data is matched to client database records using a name and address match – is less mature.” He admits, though, that “there is a difficulty facing marketers in assessing the incremental value added by lifestyle data”.
Dawn Orr, sales director of NDL, probably the biggest lifestyle database company operating in the UK, rejects the idea that lifestyle databases have had their day. She says: “Lifestyle data, once an information source used almost exclusively for customer acquisition through consumer list rental, is now rapidly broadening its remit in the market.”
She cites two factors to support her argument. Firstly, sheer mass. Lifestyle database companies have now collected so much information on UK households that it can be used “for a whole range of other strategic marketing applications”. NDL and sister company CMT, which are now both owned by the Dutch publishing group VNU, have between them information on nearly three-quarters of the UK’s households.
Secondly, even those companies which want to be one-to-one driven need the services of lifestyle databases, she claims. “In the bid to cross-sell, up-sell and retain customers in the battle for increased market share, organisations are having to become ever more sophisticated in their approach to database development, customer analysis and predictive modelling. Up-to-date, relevant customer/market data is the common currency driving important advances in these areas. As a result, lifestyle data is increasingly in demand by organisations for a whole range of applications.”
David Cheek, marketing director of The Computing Group, says that lifestyle databases still have a role to play, either “as cold list sources for specific information such as age, interest in bingo and so on, which you can combine with similar information to provide a profile”, or “to add colour to a database”.
Cheek explains this second point: “A customer database usually holds simple transactional data, but lifestyle data can give you much more. When you start matching different clusters, you can put in additional information like age. With even more specific data from sponsored questions, you can add details such as the person’s favourite food, his intention to buy a conservatory or whether he has wedding plans.”
Maria Dooley, list sales manager of list broker Lexicon Marketing services, strongly believes that lifestyle databases are still a vital element in marketing programmes. She says: “As independent list brokers, we believe all six lifestyle databases should be considered by our clients. First of all, they offer clients ‘universe’ potential which is not always available from other files, and secondly the companies which own them offer data tagging and profiling services.
“Profiling helps the client understand more about his/her customer database, while tagging makes the client more valuable, allowing more personalised mailings which should increase the response.”
Epstein accepts all of these arguments in favour of lifestyle databases: but he still believes that there is little use in clients going to relatively expensive suppliers of lifestyle information if they are going to continue to ignore their own data sources.
Marketers, as far as he is concerned, are scandalously wasteful of their own resources, and seem to be more concerned about investing money in the pursuit of those consumers who fail to respond to their wiles than in rewarding those who have.
“The problem is,” Epstein says, “that marketers have become ignorant or lazy. They think they have to send all their customers questionnaires, or buy data from lifestyle databases. I challenge the idea that if they buy data and overlay it, they’ll understand their customers better. What they should do is look at their own records collected through the sales of their products – they will have a huge amount of transactional and behavioural information.” And that information, he says, is always going to be more relevant than what someone who may never have bought one of their products says on a survey.
But even today, Epstein laments: “Ultimately, most companies still can’t tell you who has responded from a particular direct mail campaign, and they usually have no idea how they acquired those customers they do have.”
It sounds as if relatively little has actually changed since the days when banks knew exactly how many accounts they had, but no idea how many customers – let alone where they lived or what they did at weekends.