If you are irritated by the amount of junk mail you get, take heart. Companies are using database marketing to find out who really wants to receive what. Jane Bird.
Should you buy a new car from Saab, be prepared to disclose a little more than your name and address. Saab will want to know whether you are single, married or divorced. Have you any children? Do you enjoy listening to music, rock-climbing or parachuting? Where do you take your holidays? Which newspapers and magazines do you read? What are your favourite TV programmes? And incidentally, why did you choose a Saab?
This interrogation may seem like a gross invasion of privacy, but no- one is obliged to answer Saab's questionnaire. In fact, 95% of customers fill in the form, says Chris Owens, the company's UK advertising and direct marketing manager. They are willing to put pen to paper in return for entry in a prize draw, or the offer by Saab to return their car keys should they ever be found and handed in to the company.
Follow-up questionnaires are sent out every six months and analysed to maintain a comprehensive and up-to-date profile of typical Saab owners. Customers are asked how frequently they expect to change their car, and whether they look for safety, performance, innovation, or economy when buying a new vehicle.
Owens uses the responses to focus his direct mail and promotional activities on the right audience. 'With only 12,000 new cars sold each year, 78% to previous customers, our volumes are small. It is more sensible for us to look for closely targeted campaigns rather than broadcasting our message to the masses with reams of advertising. The only way we can do it is to obtain an accurate profile of our existing customers.
The database enables Saab to measure the effectiveness of advertising, direct marketing, sponsorship, exhibitions and coupon mailshots. 'We can find out which promotion pulls in the best results, and use this knowledge to refine the database for future use,' Owens says. For example, if we had been advertising in Gardening World, and I discovered that none of our customers were reading it, I'd immediately cross it off our advertising programme.'
Owens uses his database for joint promotions with companies whose products are targeted at the same socio-economic group, such as Scandinavian Airlines, Bang and Olufsen, Raleigh, and Laurent Perrier. 'It also helps us to spot sponsorship opportunities, if, for example, we find people show a preference for off-shore power-boat racing, water-skiing, sailing or golf,' he says. The detailed customer profiles enable Owens to rent other similar customer lists, thereby expanding his audience, they also help identify and attack market opportunities -a feature Saab is already exploiting in its drive to lower the age of a typical owner from 45 to 30. A series of questions on customers' thoughts about their car services provides feedback on the quality of Saab's dealership franchises.
Many companies are expected to adopt similar research techniques during the next few years. Sales and marketing now represent the single biggest expense in business, at between 25% and 45% of company expenditure. Recession and increased competition threaten to push the figure still higher. Analysts forecast that the £1.7 billion that UK companies spent in 1990 on the use of IT for sales and marketing, will grow at an annual 30%.
In the next five years there will be two types of company - those who use the computer as a marketing tool, and those who face bankruptcy, says Harvard Business Review. 'By the end of the decade, a corporate without a computerised marketing database will be as anachronistic as a corporate in 1991 without computerised accounts. A marketing database will be seen as vital to sustain a competitive advantage. Loyalty marketing and relationship marketing strategies will be standard practices of successful companies.'
There is a long way to go. Saab's activities are unusual. 'Most companies are profoundly unaware of the positive value of computerised information,' says Daniel Balkin, managing director of London-based Datascope Marketing, a database consultancy. Few organisations maximise the potential of their existing customers. 'Many companies are ineffective when it comes to marketing to their huge existing customer bases. They are fond of saying "we listen, we understand, we care, we're thinking for you" yet they ignore the potential of database marketing to do just that,' he adds.
Even more frequently overlooked is the list of lost customers. Datascope Marketing recently received a panicky phone call from one of its clients, a financial services company, which was haemorrhaging customers and suddenly realised it needed to know the cause. Did Balkin still have a copy of the tape listing customers who'd bought once then gone away? No, Datascope had returned a box of the relevant tapes several weeks before, and the client had wiped them for re-use. 'Too late the board realised that its lost customer list was one of its most precious assets, says Balkin.
One reason for the slow uptake of computers in marketing is the complex nature of the task. Computer systems, developed largely for process management and to control internally generated data in production and accounting, do not adapt well to the diverse activities of a marketing department, says Hilary Warren, managing director of Shamrock Marketing, a database consultancy in Chalfont St Giles, Bucks. 'Problems often occur because responsibility for customer databases is given either to the marketing department, which knows nothing about computers, or to the data processing department, which does not understand marketing,' says Warren. For example, when marketing databases are combined, they have to be cross-checked to remove duplicates while extracting any additional information on the same customer - so-called merging-and-purging. 'The need for such a procedure would be unlikely to occur to a systems designer who had only worked on processing nominal ledgers,' she adds.
On the rare occasions when computers are present in marketing departments, they are seldom linked in networks, so disks have to be swopped in and out to merge mailshots with customer names and addresses, Warren says, 'There's no cohesion. It's all unbelievably fragmented - the equivalent of a financial system where the sales, purchase and nominal ledgers could not talk to each other.'
Another problem is that there is often a complete lack of senior management involvement. As Balkin says, 'Nobody at the highest level is directing and managing information so it's hardly surprising that crucial files are lost or tapes wiped.' And although cost savings can be achieved, large-scale job cuts are unlikely to occur as a result of computerising a marketing department.
Some companies sub-contract their customer database to a computer bureau, only to find that they must wait four months for the answer to a query. By the time a marketing executive gets his response, he has forgotten the question. Where in-house systems do exist there is profound user dissatisfaction - more than 40% of sales and marketing users currently want to replace or update their systems within a year.
The main challenge for marketing staff is to recognise that they have nothing to fear and everything to gain from technology, says Balkin. 'Many people worry that the technology will drive them, but it won't.' Recent developments in colour graphics make computers much easier to use, while networks can deliver vast quantities of information to remote screens at lightning speed. Marketeers should be able to get answers to their questions quickly and easily.
The main requirement is a 'relational' database, says Warren. This has a fluid and flexible system unlike the traditional, hierarchical approach. As the name suggests, it is based on storing knowledge about the relationships between each piece of information held.
'Relational databases make it easy to ask questions such as "Find me all the customers in Birmingham who have not bought from us for six months", whereas a hierarchical system will print you out a horrid pile of green and white striped paper and leave you to spot the correlations,' Warren says. They are also easily changed, updated, and merged with other databases. 'This makes them ideal for marketeers who constantly seek new information sources, refine their techniques and need to combine in-house company information with external data,' she continues.
Marketeers must face the technology and seek to acquire a working understanding of the capabilities of computers, Warren reckons. Only then will they be able to spot the opportunities computers can provide. But when setting up a project team, be sure to include a salesman, she warns. 'Support from sales staff is essential because you need their feedback. If you give them a lead, you desperately need them to come back and tell you whether it was useful. Ninety per cent of salesmen won't use a marketing database if they don't feel they were consulted at the design stage.'
The opportunities presented by database marketing are creating some surprising pioneers. The football industry is not renowned for its commercial enterprise. But clubs are now under enormous financial pressure to generate funds to pay for the all-seater stadiums required by the Taylor Report which followed the Hillsborough disaster. Their member lists are a rich untapped resource that has lain around club sheds in cardboard boxes for years. Many are now being used for direct marketing.
Some clubs, such as Watford and Brentford, have become travel and entertainment agents, marketing holidays, theatre trips and transport to other sporting events for members. But if you are one of those who curses when the letter-box is full of unsolicited catalogues and brochures, take heart. Database marketing should result in less, or at least more appropriate communications. Balkin says: 'It means companies can analyse your consumer characteristics and know who is interested in receiving what information. The whole idea is to stop hassling people with junk mail.'