How and why to build a marketing database: In-house or Out-Source? Sept 18, 2008 10:00 AM CDT

1. How and why to build a marketing database:In-house or Out-Source? Sept 18, 2008 10:00 AM CDT Arthur Middleton Hughes Vice President / Solutions Architect KnowledgeBase Marketing

2. Who is That Guy Who is Speaking? Arthur Middleton Hughes, Vice President / Solutions Architect at KnowledgeBase Marketing has spent the last 20 years designing and maintaining marketing databases for database marketing clients including wired and wireless telephone companies, insurance, banks, catalogers, pharmaceuticals, package goods, software and computer manufacturers, resorts, hotels, automobiles, and non-profit fund-raisers. He is the author of Strategic Database Marketing 3rd Ed. (McGraw Hill 2006).

3. Multiple Sales Channels Web & Email Retail & Wholesale Fax, Phone & Mail

4. Data Stored in Separate Silos Web & Email Retail & Wholesale Fax, Phone & Mail Retail POS Database Telesales Database Web Database

5. Result: No One Understands the Customer • Emails sent based on email response alone, not on overall purchases • Gold customers are seldom recognized • Long time customers treated as strangers • Customers feel unappreciated • You may lose your best supporters

6. Solution: Build a Central Marketing Database Web & Email Retail & Wholesale Fax, Phone & Mail Data Cleaning & Consolidating Consolidated Marketing Database Updated weekly, daily or more often

7. What is Kept in the Database Record? Transactions Promotions Responses Consolidated Customer Marketing Database LTV, RFM Model Scores Segment # Status Level Appended Data Web Behavior & Cookies

8. How is the Database Used? Email Campaigns Phone Campaigns Direct MailCampaigns Consolidated Customer Marketing Database Customer Segmentation Status Level Rewards Models and Analytics Website Recognition Defection Prediction

9. How is the Database Accessed? Marketing Staff Analytics Staff Website Access through the Web Data Center for Updating and Maintenance Consolidated Customer Marketing Database

10. Marketing Databases and Operational Databases Data Append Operational Database Marketing Database Model Scores RFM & Lifetime Value Sales, Shipment, Payment Marketing Communications Transations General Ledger Promos & Responses Surveys & Preferences

11. In-House or Out-Sourced? • Some companies feel that such databases should be built by in-house IT • “This is proprietary customer data. We just cannot afford to have it leave our premises” • Possibly, but perhaps the real reason is that IT does not want to lose a valuable function. • What’s wrong with building a marketing database in-house?

12. A Ridiculous Example • It would be possible to build a company truck from parts purchased from an auto supply co. • It would take a year to build and not work as well as a production model from Ford or Chevy. • But: your staff would now know how to build a truck from spare parts! • Problem: most companies are not in the truck building business. The truck would not be available for deliveries during the construction period.

13. In-house Marketing DB Similar Problem • No one in IT (typically) has ever built a marketing database before. • Marketing DBs require special software not normally used by IT: merge purge, geocoding, on-line access, ad-hoc data mining and reporting, segmentation, appending data, etc. • There are many software packages required. Each has to be studied, purchased and staff has to be trained to use them. • It will take a lot of staff time, and many months.

14. Better Solution: Have DB Built by Experts • There are dozens of companies that have built scores of marketing databases. • They have the software and experienced staff • They can get your db up and running faster and at less cost than an in-house pickup learn-on-the-job crew. • Once it is up and running, you can migrate the DB to in-house staff

15. The Constant Change Issue • Most IT operations are designed to run for years without change. • Marketing programs are experimental: constant tweaks and changes needed as the market shifts • IT says to marketing: “Why can’t you guys make up your minds?” They resent the constant shifts • Besides: IT’s main job is payroll, inventory, billing or manufacturing. These jobs will always take priority over marketing. You will just have to wait.

16. How You Relate to a Contractor • If your db is built by a contractor, you can hold them to timetables and quality standards that you could never do with your in-house IT staff. • Develop a tight contract that puts marketing in charge. • Make sure your contractor has built several marketing databases already for other companies. • Call the references and ask how well they performed.

17. Case Study on Outsourcing • A Regional Bell wanted a DB for their yellow pages- they published 90 books a year. • Outsourced a pilot DB to a contractor who built it in 90 days. It was just what marketing wanted. • For first time, they could compare ads by SIC codes and size in each of the 90 books – and sell many more ads. “Your competition has ads in these four books – you are only in two.” • Marketing wanted it permanent – based on IT furnishing a monthly copy of their billing ad file.

18. Why the Project Failed • IT said, “Well, if that is all it is, we can do that – and do it cheaper than the contractor.” • IT was given the job. They had to research and buy software and train their staff to use it. • Unfortunately, other higher priority projects intervened. • Four years later the DB had still not been built. • The proponents in Marketing had moved on. • The project was cancelled.

19. All Major Corporations Outsource • Marketing databases are outsourced by even the largest corporations with huge in-house data centers. • Microsoft, Pizza Hut, Western Union, Nestle. All have large data centers, but outsource the marketing db. • Kraft Foods built their huge marketing db in-house. After a few years, they realized their mistake and outsourced it.

20. The Proprietary Data Issue • These are our customers! We cannot afford to let this sensitive data outside! • Question: Where does your company keep its money? In a safe in the office or in a bank? • Banks can be trusted to keep corporate funds. • Reputable service bureaus can keep their client’s customer data – safe and secure. • Reputable service bureaus never sell or exchange client customer data.

21. Specialized Software Issue • A major California Bank built their marketing database inside. • They bought D&B data for all businesses in California. Matched it with their business customers. They got a 4% hit rate! • The same two files were sent to a DB service bureau. They got a 40% hit rate. Why? • Internal IT did not know how to do merge purge. With business files, it is very complicated.

22. The Speed Issue • Building inside will take two to three times longer • Why? Because no one has done it before. • New software, staff training, staff availability and higher priorities are the problem. • Outside, a service bureau has built 20 similar databases. They can afford to put five skilled people on the job to get it done fast. • After that, one or two of them will maintain it.

23. The Cost Issue • It costs twice as much to build inside. Why? • Service bureaus have the trained staff and the software and the experience. Building one more marketing database is no big deal. Costs are spread over 20 databases. • Inside they will have to recruit and train new workers, research the software, buy it, and learn to run it. It will be expensive. • In house staff often is higher paid, with medical and pensions.

24. The Legacy Issues • The operational databases were built years ago based on what was available and important then • The marketing database must be built today with much different software. • Those who are maintaining the existing databases (IT, website, catalog, POS) may fight any change in their systems, and resent IT taking functions away from them. • A service bureau has no legacy issues. There will be no jealousy. They will get along with everyone.

25. The Priority Issue • How does marketing fit into the organizational hierarchy? It is seldom at the top. • Marketing needs to send emails and direct mail to customers to meet deadlines. • Once the db is inside, marketing seldom has enough leverage to get their priority work done • With a contractor, you can say, “If you miss a deadline again, we will find another contractor” • Can you say that to IT?

26. The Warehouse Issue • A data warehouse is a trap. It is managed by a committee with many different goals • Marketing is just one of many users. They cannot dictate what is in the db and when it is updated. • Successful marketing is dynamic. It needs a forceful leader who makes quick decisions. • If the marketing database is part of a gigantic warehouse, quick decision making is dead. • Better: put the db at an outside service bureau.

27. What Does Your Database Contain? • A marketing database contains much more than customers. It keeps leads, prospects, lapsed customers, unsubscribers and suppression files. • Marketing databases are built around people or companies who have bought or might buy. • In house operational databases are built around transactions. • Building in house will present issues: why do we need all this data? How can we make it balance?

28. Firewall Problems • Anything built inside is protected by a firewall. • Marketing databases often share data with business partners, with telesales contractors, with email service providers. • As soon as you try to get a collaborative project going, you will run into firewall problems. • Make up a list of all the marketing initiatives that you will have to kiss goodbye if you build your database in-house.

29. Data Cleaning Problems • Most in-house data needs a serious cleanup • Missing data or erroneous data (Junk in the state or zip fields) • Undeliverable Addresses • Name field bad: personalization problems • Some companies take years to clean up their data • A service bureau can clean up most data in a few days. Why? • Because every day they receive hundreds of lists to be merge purged. Many of them are bad. Cleanup is what they do!

30. Database Processing Routines • The Coding Accuracy Support System (CASS) improves the accuracy of delivery point codes, ZIP Codes • Delivery Point Validation. DPV contains all delivery point addresses serviced by the US Postal Service. • Address Element Correction corrects missing address elements. • Delivery Sequence File – Second Generation. DSF² provides info to minimize address delivery errors • Locatable Address Conversion System. Updates rural style addresses to city style addresses. • NCOALink contains movers names along with an old and new address. • Dynamic Change of Address. Finds new addresses not found on NCOALink • Suppression Services. DMA Do not call lists, Prison addresses, Deceased Screen, Vulgar Screen. CASS DVP AEC DSF2 LACSLink NCOALink DCOA Suppression

31. Database Address Correction

32. Five Times a Day – In-house? Five times a day Phone Activites: Transactions Survey Results Responses Promotions Communications New addresses New Customers Outgoing Msg. Emails Trawling for New Customers New Movers Transations Responders No Activity High Activity Milestones Events Emails Marketing Database Direct Mail Five times a day Personal Contact

33. What You Can Do with a Marketing DB • Store behavior and append demographic data • Create customer segments, and develop a marketing plan for each segment. • Personalize all your email communications to customers – to build loyalty and sales • Append demographic data • Determine customer lifetime value.

34. You Will Need Constantly to Score Your File • A marketing database needs to be scored for: • Propensity to buy or defect • Lifetime Value • Next Best Product • A marketing database, today, needs to keep clickstream data on opens, clicks, downloads • In many cases, it has to be updated in real time– so that a customer who has bought at 3:00 PM will get emails about her purchase at 3:10 PM • Can you do this in-house?

35. Segments and Status Levels Marketing Segments Status Levels Business Customers Gold Affluent Retired Young Singles Silver Families with Kids Customer Marketing Staff Bargain Shoppers Bronze Occasional Buyers

36. How One Women’s Chain Segments Their Customers

37. Why You Should Out-source Now • For historical reasons, many companies have separate marketing databases for retail, catalog and on-line. • They do not have a total view of their customers. • There are dozens of companies that support both small, mid-sized and large marketing databases. • Develop an RFP and find a good marketing partner as soon as you can.

38. Outside is cheaper and built faster Outsource has experience – inside, no. Need for fast updates & constant file scoring Your can tell a contractor what to do – you can’t do that with IT Proprietary customer data is a phony issue Legacy problems easier solved by outsource You will have priority outside Avoid a data warehouse No firewall problems You design it around customers and prospects Data cleaning easier outside. Summary of Outsource Reasons

39. Books by Arthur Hughes Order at www.dbmarketing.com Contact Arthur: arthur.hughes@kbm1.com