MARKETING MANAGEMENT

TERM PAPER

DATABASE MARKETING

Submitted by:
Name: George James
Batch: PGDM- C
Roll No: P14243
Date: 20/09/2014

Database Marketing

Executive Summary
A customer database is an organised collection of information regarding the customers.
Individual details of customers are maintained in order to improve customer relationship and
thereby to increase the customer loyalty. Database Marketing (DBM) is the process of
collecting, maintaining and using the customer databases and other databases (regarding
suppliers, products & sellers) in order to build customer relationship.

This paper discusses in detail about how the Database Marketing system can be done
more effectively, how DBM acts as a source of competitive advantage, importance of
performance measurement in Database Marketing, how the concept of total quality is brought
into DBM,

what are the challenges faced by Database Marketing, presently how the

companies use DBM system.

Keywords: Database Marketing, Data-warehouse, Data-mining, Competitive advantage

Introduction
In pre-industrial era the marketing efforts were mainly focussed on the distribution of
quantity and quality products giving less attention to long term customer values and
satisfaction. But as completion increased, the organisations started to realize the importance
of understanding the customer needs and wants. Presently many contemporary marketing
thoughts are evolving to improve customer relationship. One of these contemporary thoughts
is Database Marketing (DB). The overall aim of Database Marketing is to give more
importance to customer focused marketing than product based marketing

Database Marketing is the process of identifying, collecting and analysing information

about the past, current and potential customers from all sources- internal and external- leads
and prospects to drive strategic marketing and sales decisions. There are mainly 2 types of
Marketing Databases: Customer Database (B2C) and Business Database (B2B). Customer
information is organized into a single, retrievable marketing database called Customer
Database. The information is accumulated through customer transactions, telephone queries,
registration information, trade show leads, catalogue inquiries, e-mail requests for
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information, warranty cards, cookies etc. Customer Database contains information such as
names, addresses, telephone numbers), details regarding customers past purchases,
demographics (age, family members, income), psychographics (activities, opinions,
interests), media graphics (preferred media) etc.

Figure 1: Sources of information for Customer Database

The collection of these data is done by companys contact centre and they will organise
the data into Data Warehouse. Marketers use this Data Warehouse to capture, query, analyse
and draw inference about the customer relationship and customer loyalty. Customized
marketing activities can be directed to individual customers based on this. Marketing
statisticians extract useful information about individuals, trends and segments from data
warehouse through data mining. Cluster analysis, Automatic interaction detection, Predictive
modelling, neutral networking etc are some of the statistical and mathematical tools used for
data mining.
Information thus collected from customer database is further used to develop and
implement action plans to enhance marketing results and could be instrumental in designing
effective marketing campaigns. This information when accurately maintained could help in
attracting new customers while fostering more personal relationship with current customers.
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Database Marketing

The cornerstone of Database Marketing is developing and understanding the customer

relationship. This can improve customer retention, increase customer loyalty and value and
drive product development. This can dramatically improve the efficiency of acquiring new
customers. Thus Database Marketing allows marketing managers to understand customer
behaviour and responsiveness, customer lifecycle, customer risk, customer loyalty, customer
segmentation and customer profitability.

Thus Database marketing is the creation of a computerized marketing database and

marketing to current and potential customers, in a smarter, faster and more cost effective
way, for their benefit and customers profit. A proper database marketing system can add
value to the company.

How to make Database Marketing more effective [1]

If a company wants to achieve the desired results from Database marketing, they should
optimize the way of reaching to the right customers. Some of the ways by which the
companies can improve the effectiveness of Database Marketing are as follows:

a. Update the database on regular intervals

In order to keep the database updated, the companies can use some sort of third party
application which integrates with the database and keeps it automatically updated.
But the most preferred and even the most accurate way of data updating will be
through manual updates
b. Regular value addition by adding new Contacts
The company should never maintain a stagnant database. It should add value to its
database by constantly finding out new list of contacts or companies to upload.
Company should be ready for new actions and should find out new ways to increase
profit by being proactive with its database. For if it is found out that the majority of
prospects that the company is selling are into the web developers, then it should
purchase a list of web developer names and emails and add them to its database.
c. Be a Broader Marketing Team Player
The company should be able to keep a track on the leads sent. Thereby it can
understand what all are selling, who all are the interested customers and who all are

Database Marketing

not interested. Then based on this valuable information the company can act
accordingly. For example if in a month there is large number of booked leads from a
website, the this information should be communicated to those who handle companys
sites content marketing to act based on the data published during the period of
increased activity. The company should know what industries, job titles, etc. Are
binging most value to its database and ultimately to its business.
d. Choices made, should be known
Companies should make their choices from database wisely. It should look for trends
in whats selling and find out the list that makes sense based on its offerings.
e. Be & stay organized
The company should use applications which help in preventing duplication of data
and also that help in keeping its database clean and organised
f. Educate its Team
It is very important that the employees of the company should be well trained and
updated. They should know about the latest trends that are prevailing in the
companys industry so that they can stay ahead of the eight ball.

Database Marketing as a source of competitive advantage [5]

a. Database Marketing as a Source of Strategic Competitive Advantage

Stone and Shaw (1987) identified Database Marketing acting as strategic competitive
advantage in following areas:

Changing the basis of competition- It can change the basis of competition by

creating and maintaining a strong database and using it to win customers from
competition.

Strengthening customer relationship- It can strengthen the customer relationship

through individualized relationship with customers. This will help the company
not only n in acquiring and defending customers but also stimulating revenue
growth

Overcoming supplier problems- It can provide the company with alternative sales
channels and hence can overcome supplier problems through applications such as
e-mail- ordering, telemarketing and inquiry management.

Database Marketing

Building barriers against new entrants- Well organised Database Marketing

system can prevent new entrants to the market

Generating new products and services- Well organised and updated database
allows the company to know the emerging trends in the market and be the first to
come into the market with new products and services that matches the market
trends.

Ability to support organisational learning- Database Marketing systems makes the

employees of the company to learn about the market updates faster than the
companys competitors and helps to create superior customer value. It supports
organisational learning in the key stages such as information acquisition,
information dissemination and shared interpretation.

b. Database Marketing as a Source of Tactical Competitive Advantage

Davis (1997); Lewington et al. (1996); Berry and Maclean (1989) found that through
the effective use of database marketing, various tactical competitive advantages are
obtained which include the ability to:

Tracking the customer purchasing patterns and understanding their motives

Targeting the marketing efforts

Varying the messages to different customer groups

Customizing the prices, services and promotions to individual customers

Increasing the profits, reducing the market costs

Improving the customer retention through customer loyalty programs

Coordinating the offering of multiple services to same customer

Personalising dialogues for individual customers

Improving the customer awareness and sales

Minimising the breakdowns and communication error with the customers

Applying latest statistical techniques for improving the understanding of different

customer groups

Conducting market research and tests

Database Marketing

The Role of Performance Measurement in Database Marketing Systems [4]

Managers should define the aims and objectives of Database Marketing systems
according to the organisations needs. The customer database should be used as a source of
market planning. Then performance measures are to be determined in order to monitor the
results of alternate marketing scenarios. Various performance measures that DBM managers
need to consider are:
1. Response rate- This is perhaps the most effective performance measure that a DBM
manager may wish to consider. Increase or decrease in response rate may be critical
predictors of organisations performance.
2. Measurement of financial performance of each marketing program in terms of
average sales per customer, bad debts provision, and contribution analysis
3. Measures of economics of customer retention, reactivation and acquisition. Trends
found in these measures indicates the effectiveness of marketing activities in customer
relationship building
4. Service quality and measures of operational efficiency
But many organisations still does not implement performance measure into their
Database Marketing systems. Three main reasons for ignoring performance measures in
DBM are:
1. The data management and acquisition cost may not be offset by savings from
marketing productivity improvement.
2. Significance of complex performance measures are not properly understood by the
management
3. These measures may be used to assess the personal performance of managers and this
creates a feeling of job insecurity and work pressure among the managers

Thus the efficiency of Database Measurement process can be greatly improved by the
incorporation of performance measures within the system.

Information obtained from

feedback can give the managers higher control over market productivity. Data acquisition
process may have to be modified to support the performance measurement and to improve
planning process. Performance measures can contribute useful impacts to budgeting
procedures. Also it can raise data acquisition costs. The design and incorporation of the
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performance measures should be carefully done in context of companys culture, size and
individuals expectation of results. But excessive performance measurement can bring
inverse or negative human, economic or organisational consequences.

The concept of Total Quality in Database Marketing [3]

The success of the Data-Based Marketing depends on an effective and efficient
utilization of good quality databases for the purposes of attaining the needs of the target
market, providing the highest quality performance for all areas, reviewing constantly
all the processes creating an effective competitive strategy, following a team approach to
solve the problems and determining effective ways of communication with customers. The
Data-Based Marketing consists of some stages such as: the continuous development of
data warehousing, data analysis, data optimization, data updating and fast accessibility
of data. Since all these stages are important in Data-Based Marketing process the quality
must be taken into consideration at these stages. Although each stage of this process is of
great importance, the first two stages (Data warehousing and Data analysis) are more
important.

a. Data Warehousing (Storage)

Data warehousing is the storage of customer information such as: names, home
address, communication history (complaints, product returns, etc.), demographic
characteristics, phone and / or e-mail contacts (addresses), purchase (buying) history,
credit and payments. Data warehousing can also known as inventory information. If
this data is correct, safe and up-to-date then the data is said to be in good quality. In
the first stage of the Data-based Marketing process customers and customer
candidates are determined. Database for stored product information is basically used
at this stage. Details of customers are collected through internal resources such as
warranty, registration cards, accounting records etc. Also data can be collected from
intermediaries, distributors or sales representatives.

It should be noted that current

and latest information is collected from intermediaries. Generally, the data collected
from consumers, can be divided in two groups: promotional data and buying
behaviour data.

Database Marketing

Promotional Data, includes contact information such as: address (home and
work), phone (work, home and mobile),.and e-mail contacts and also demographic
characteristics such as: gender, e-mail,

age (date of birth), educational level,

occupation, income level, marital status (if there is a marriage; date of marriagemarriage duration, husband's /wifes name, date of birth, occupation, education level,
if there is a child/children; childs name/children's

names,

date

of

birth,

educational level and so on.)

Buying Behaviour Data includes information about customers such as: the
latest shopping (information), shopping frequency, the quantity, type and the
monetary

value

of

the

product,

lastly

complaints,

and product

returns.

Databases at this stage are in constantly growing mode and same customers detail
can came at several places in the database. To distinguish whether the customer is the
same customer (person) or not and maintaining the total quality of database by
preventing recurrence makes the database both actual and effective. In this context,
the total quality approach in Data base will help to maximize the efficiency of
the database

b. Data analysis
At this stage, customer groups with similar needs for different products
are

determined.

More precise segmentation

and more specific targeting

of

customers is done at this stage. Furthermore, it is ensured that all customer contact
information is available at any time. High quality database used in this stage can
provide significant benefits.

Thus in Database Marketing, Total quality play a vital role in building customer
relationship, improving customer interaction, development and satisfaction. Total Quality
Concept in Database Marketing can also be utilized to obtain correct and reliable results
on many issues such as Customer and target market identification, firms sales
analysis, ensuring the loyalty of existing customers and motivating the customers for new
purchases, the creation of marketing power and even the determination of price policies.
Thus, higher-quality, more profitable and efficient operations can be done for increasing
customer loyalty. Moreover, Total Quality Concept, in Database Marketing, focus on the

Database Marketing

objectives of adding value to the customer-to business relationship and to gain new
customers by means of existing customers retention.

Challenges/ Obstacles to database marketing [3] [5]

There are four areas which are identified as critical to the development of competitive
database marketing systems. Various obstacles are as follows:

Environmental Obstacles to Database Marketing- Environmental obstacles, both

within and external to the organization play a major role in the development of
database marketing systems. Internal issues or organizational barriers can occur in one
of three major areas: resource issues, cultural issues and cognitive limits. Nowadays
external environment also exhibits numerous challenges to effective database
marketing. External issues of primary concern include: privacy, data ownership,
supplier interface and exclusionary practices. Since the companies take their database
marketing strategies global, the impact and intricacy of external issues is
compounding nowadays.

Internal Obstacles These are mainly cultural Issues: Researchers identify 5 issues
connected with organizational culture, which impact companies as they implement
database marketing. They are:
1) Management understanding and objectives;
2) Cooperation and commitment;
3) Organizational structure and ability to change;
4) Decision making styles; and
5) Marketing and information orientation.

Technical Obstacles to Database Marketing- Technical barriers have been found in 4

major areas when implementing database marketing:
1) Database design;
2) Data selection and maintenance;
3) Data analysis and application; and
4) Build or buy decision.
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The effectiveness of their database marketing system depends on how organizations

manage the challenges that arise in these areas. Some of the major challenges faced by
Database Marketing system are as below:

First challenge is that the collection of the most important information i.e.

the

transaction history for each consumer. Knowing what a customer has purchased in the past,
gives many hints about what he will purchase next. Collecting demographic information
about each customer can be useful for companys business. It includes age, education,
income, family size and other such features. For corporate buyers, it may include contact
addresses, job position, job responsibilities etc. When it comes to individual customers,
many other information can be included such as psychographic information that defines
customers occupations, interests and opinions and how do customers think the purchase of
the product and how can it affect others.

The second challenge is that the sellers (salesman) have to be trained to collect useful
information during sales visit and then arrange this information into the customer file. Credit
rating agencies and telemarketers can also collect additional information by phone.

The third challenge is to preserve, maintain and update the collected information.
Every year, approximately 20% of the customer database information can become old.
Therefore the updating of the data at proper intervals is very important. For updating the
information, there have to be some telemarketers for calling the customers and updating their
details.

The fourth challenge is to use the information effectively. Many companies are not able
to use the information efficiently. An expert data miner can bring interesting segments,
trends and opportunities in the market by using advanced statistical tools and techniques.

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Present uses of database marketing [2]

In the developed nations such as United Kingdom and United States of America, the
database marketing is currently used in both the business-to-business and business-toconsumers and also in non-profit making organizations. In the retail sector, database
marketing is used to track consumers motivation and behaviour and also in appraising loyalty
of customer. However, many retail shops in the UK use different instruments for maintaining
information about customer for loyalty rewards. For example, Tesco, Iceland, Corporative
society use customer loyalty cards to determine the frequency and regularity of the customer
visit and rewards are offered based on that in form of cash or quantity discounts. The
Blackwell reward card is another instrument which measures the extent of loyalty of purchase
of books from Blackwell bookshop, and offers cash discount based on the loyalty for any
purchased product. Database marketing is effectively used in the airline industry also. For
example, the British Airways (BA) keeps the details of customer information such as date of
travel and frequency of travel and uses these details to admit the frequent travellers into
different classes of the BAs executive club membership. The Lufthansa airline has recently
introduced database cards named Miles and More, which aims at giving free flight ticket
rewards to customers for flying for five consecutive times.

In the education sector (University education), database marketing is mainly used to

make decision on how to target the international students. Programmes director could decide
on which all countries are to be participated in education fair to campaign for admission of
new international students. In politics, politicians use database marketing system to make
campaign decisions and target voters.

Conclusion
It is hardly deniable that the future of database marketing in a contemporary business
environment is bright in both the B2C and B2B firms as marketing decisions is going to
depend on information from the database marketing. Database marketing will be used is in
making decision of price discrimination and product differentiation. In the future, database
marketing will continue to be used in market segmentation in terms of demographics and
geo-demographic variables. Database marketing will continue to play its vital roles in helping
marketers in product customization and enabling them in receiving online feedback about any
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product promotion or modification in channel effectiveness. The database, particularly in the

developed economies may be the only source of making effective decisions about customers
and also about the competitors. Database marketing will be strategically used in determining
what kind of marketing campaigns to be done and which type of products are to be derived to
the market. Decision made by managers will be accurate since most marketing decisions will
be based on intelligence garnered from the database. It is therefore highly recommended that
organisation should continue investing in developing and building database marketing.
Constant monitoring of customer data will help the marketers to develop customer and
competitive intelligence and could enable them develop products and services that can
increase customer value and loyalty. A separate unit to handle the database marketing system
will not only help organisations in terms of data acquisition, but will help them to generate
return on investment. As technology, competition, customer value proliferate, the future of
database marketing will become definitely more exciting.

References
[1] Dr. Veena Tewari Nandi and Dr. Harish Mittal; Database Marketing- OLD WINE IN A
NEW BOTTLE!!! ; International Journal of Advances in Engineering Sciences, Vol.3 (3),
July, 2013.
[2] N. Gladson Nwokah and Juliet Gladson-Nwokah; Strategic Use of Database Marketing
for Marketing Decision-Making; Research Journal of Information Technology 4(2), June 30,
2012.
[3] Dr. Mcahit ELK and Dr. Yakup DURMAZ; A Theoretical Approach to Total Quality
Concept in Database Marketing; International Journal of Humanities and Social Science,
Vol. 1 No. 5; May 2011.
[4] John Lewington; The Opportunities and Pitfalls of Performance Measures in Database
Marketing Systems; ISSM Electronic Journal, Issue 8, 1996
[5] Evelina Bazini and Aurela Ramaj; Database Marketing Application and Barriers Faced
by Firms in Service Sector in Albania A Framework For Understand Its Role In Creating
Competitive Advantage; Academic Journal of Interdisciplinary Studies, Vol. 2, No. 9,
October 2013.
[7] Philip Kotler, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha; Marketing
Management; 14th Edition, 2012, pp. 125- 128.
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