Database Marketing Research Paper

As a result of the lack of research into the adoption of database marketing across newly emerging economies, this paper has chosen an open-ended qualitative approach. The research was conducted after four lectures given to MSc and MBA students in 2007 and 2009 at Mzumbe University in the city of Morogoro (Tanzania). Each session consisted of approximately 25 participants. Most focus group participants have prior business experience. The lectures were part of courses in (1) Business Administration, (2) Marketing, and (3) Entrepreneurship, implying that there is diversity in the business experience of the students participating in the focus group after the lecture. Moreover, the focus group participants have business experience in the country's most developed city, Dar es Salam, and in the Morogoro region, which is near Dar es Salam, but also in the economically less developed lag zone of Tanzania. This further enhances diversity. Diversity of respondents is desirable for qualitative research, as it will lead to a more complete view of the different aspects of a researched issue than a random sample.8

As for the research approach, students were informed that they would receive a guest lecture from a European lecturer on the topic of segmentation. The lecture concentrated on customer base segmentation in the Netherlands. First, the participating students were introduced to the basic concepts of segmentation. Next, ideas were transposed to customer base segmentation. The data required for customer base segmentation were then discussed. Next, students were introduced to recency, frequency and monetary-based (RFM) segmentation9 and segmentation using K-means cluster analysis in SPSS.10

After each of the four conducted lectures, a 30–60 min interactive focus group discussion was held. The students participating in the focus groups assessed the extent to which the discussed issues are applied, raised or relevant for Tanzanian firms. First, the focus group participants were asked about the application of customer base segmentation at their workplaces. Next, they were questioned about marketing applications resulting from customer base segmentation. Note that customer base segmentation was chosen as the starting point of the focus group discussion, because during preliminary conversations with lecturers at Mzumbe University pointed out that this is the most likely use of database marketing by Tanzanian firms. The focus group discussion then focused on the availability of client data for customer base segmentation. Next, the discussion was directed in a more general direction towards other database marketing applications. This was carried out by asking the focus group participants whether their employer used the client data for other purposes, in addition to customer base segmentation, for example prospect selection, predicting customer churn.

Clearly, the qualitative focus group approach that we applied differs strongly from traditional focus group discussions. Most importantly, the participants were prepared in a university classroom setting. From preliminary discussions with lecturers at Mzumbe University, it became clear that the focus group participants would be unfamiliar with database marketing terminology. Therefore, an introduction to the terminology and to the basic concepts of database marketing was necessary to start the focus group discussions. This introduction made it possible to assess to what extent Western database marketing concepts are also applied in Tanzanian firms. A formulation of the Tanzanian level of database marketing development in Western terms enhances the understandability of the results for Western managers and researchers.

A potential caveat of this approach is that participants may be inclined to interpret the database marketing practices of their employers in terms of a Western perspective, neglecting the context-specific local applications. To overcome this potential bias, participants were probed to assess to what extent database marketing practices at their workplace differed from the Western practices discussed during the lecture. Database marketing practices, which are more specific for the Tanzanian context, were indeed mentioned by the focus group participants, sometimes before probing and also after probing. An example includes the distinctions among micro-credit, regular retail and business customers in banking, discussed in the results section of the paper.

A second difference between the approach conducted for this research and more traditional focus group discussions includes the size of the groups. Our focus groups consisted of about 25 participants each, while about 10 participants are more conventional. This resulted from the classroom setting we used. The relatively large size of the groups does not seem to be a major issue, as all participants working in firms that apply database marketing gave their input to the discussion. Participants employed by firms not active in database marketing did not provide much input, only pointing out the inactivity of their employers in this area. This in itself is an interesting finding, and is reported below. In general, larger focus groups may be useful when there is little a priori knowledge on the selection of participants that can provide much information on the topic being researched.

The manner in which we conducted the focus group can be interesting for future research conducted in areas in which respondents are unfamiliar with the terminology of the issue being researched. Moreover, in newly emerging economies, it is often difficult to find appropriate data.6 Therefore, this additional means of finding respondents may provide information to others that would be more difficult or impossible to retrieve by more conventional qualitative or quantitative research approaches. For many Western scholars who teach at universities in Africa and in other newly emerging economies,11 this channel is a promising source of data from such countries. However, when using the approach discussed above, the caveats should be considered carefully. Probes need to be used to find out whether practices different from those addressed in the lecture, which preceded the focus group, are also conducted. Another important issue herein is that focus groups should be preceded by discussions with experts to gain insight into the current local practices in terms of the issue under investigation. This will provide the necessary information for the topics that should be covered in the lecture, preventing the selection of topics that are more advanced than those of interest in the researched country.

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Having been around since the 1980s, database marketing is nothing new. However, due to the recent data explosion where the amount of information and the number of sources it is being obtained from have increased to unprecedented levels; the possibilities its effective use provides are becoming ever more fruitful.

In fact, a survey conducted by data governance experts the DQM group has revealed that 53% of the 144 UK based organisations polled planned to increase their level of investment in data and marketing during 2013. But what is database marketing and what factors are driving this new found enthusiasm for its use?

What is database marketing?

Database marketing is the process of identifying, collecting and then analysing relevant information about a company’s customers. The database is compiled using data obtained from a range of internal and external sources such as sales information, email correspondence, warranty cards, promotional efforts and, now more than ever, social media. The primary aim of database marketing is to then use the information within the database to implement marketing strategies that ultimately increases profits.

The key driving force behind database marketing is establishing, building and then maintains a relationship with the customer. Developing and understanding how customer relationships work with database marketing can be instrumental in boosting customer retention levels and therefore profits through repeat custom, as well as amassing new customers.

The three main stages of effective database marketing

Data collection – relates to the aggregation of accurate and relevant data about both existing and potential customers, and then ensuring the data is made available in such a way as it available for use by the company’s marketers in their related activities.

Turning data into knowledge – requires analysing the data so that it becomes data which can be used in effective marketing and communications. For many businesses this involves using the information to segment existing and potential customers so that targeted and appropriate marketing message can be created for existing and potential customers.

Developing and evolving business strategies – involves using the data and the knowledge within a database for shaping the strategy of the business. For example, modifying company communications, the allocation of resources, pricing and other concerns that will aid long-term profit in line with the information gathered.

The benefits of database marketing

Improved profitability – database marketing allows a businesses to segment and target its marketing efforts in a cost-effective manner, whilst improving efficiency and profit margins.

Increase sales – effective database marketing creates more sales by providing information that allows companies to identify and exploit new market opportunities, as well as attracting new customers.

Improves marketing communications – accurate data increases the quality level of communications with customers’ existing and potential, allowing a company to massively improve its chances of building lasting customer relationships.

Improve product development – with the successful implementation of a customer database, a business will be able to gather regular and up-to-date information that can be used as market research to identify where improvements can be made and where customer needs are not being met. This information can then be used in product development through by integrating conclusions derived from the research into the design of a new product.

Examples of when and how it’s used

The information collated and stored on customer databases is used in a vast majority of ways. Here are four of the most common:

Calculating customer lifetime value (CLTV) – is a prediction model used in marketing that can estimate what the lifetime relationship of an individual customer will be worth to a business. The accuracy of this model and the calculations involved have become a lot more accurate as the methods involved in database marketing have improved.

Recency, Frequency, Monetary Analysis (RFM) – a marketing technique that is used to calculate the best customers of a business based on a triumvirate of factors; how recently a customer made a purchase, how frequent they purchase and how much they spend. The theory that drives the technique’s use is the marketing paradigm that 80% of your business comes from 20% of your customers. This allows the efforts of the direct marketers to be specifically targeted to the best 20% of customers. Again, like CLTV, the accuracy of this technique has improved as database marketing has.

Customer communications – an example of how database marketing improves customer communications include using information to personalise correspondence, making it easier to build up a rapport and, therefore, increase loyalty, customer retention and sales. Email, despite the perceptions of spam, has become an essential ancillary weapon in the toolkit of the database marketer, providing the means with which to instantly communicate with customers.

Analytical Software – increasingly businesses need to monitor their customers’ behaviour across an ever more varied number of retail channels, including websites, mobile apps and social media. Analytical software that is combined with their database can be used to synthesise this information more easily and produce instant reports that help define a company’s marketing strategies.

Loyalty programs – database marketing makes it possible for companies to launch loyalty programmes, as they can store data about their sales history. This allows companies to engage with and reward loyal customers which, in turn, can encourage customers to choose one business over another.

Final thoughts

Despite being around for nearly thirty years the face of database marketing is continuing to evolve. It provides the means, when used effectively, to obtain, store and synthesise important data about a company’s existing and potential customers, which can be used to improve customer communications and, ultimately, increase profits. If your business has not had the opportunity to compile its own database, Refreshed Direct has an extensive range of lists and complimentary services available so that you can start taking advantage of database marketing today.

If database marketing has proved instrumental in improving your business, please share your experiences in the comments section below.

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James Duval

Comm100

James Duval is a marketing expert who has been cited by Mainstreet, ProBloggingSuccess and MarketingProfs. He works for Comm100, thinking about new tricks and techniques in the email and marketing industries.

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