Database marketing is a form of direct marketing using a list or database of customer and prospect information in order to personalize marketing messages. When done right, it should help you prioritize accounts, optimize the ROI on marketing spend, and increase whatever sales metrics you’re most focused on.
My grandfather was a door-to-door insurance salesman for Mutual of Omaha. As a kid, I was enamored by the different awards, plaques, and fancy office supplies he kept clustered in his small home office. But he was most proud of his gigantic rolodex, not uncommon for the time, filled with customers’ names, the names and ages of their children, birthdates, the street they lived on, and neighborhood they grew up in.
The times may have changed, but database marketing is still a powerful part of any marketing 101 strategy. In fact, with the explosion of consumer data and the shared technology that enables us to maximize the use of that data, database marketing is more relevant and important today than it ever has been.
Generally speaking, there are two main types of databases:
- Consumer database: This type of database marketing is geared toward companies that sell directly to their consumers, often times labeled as direct-to-consumer, D2C, DTC, or B2C.
- Business database: This type of database marketing is geared toward businesses that sell to other businesses, also called B2B.
Overview: what is database marketing?
Database marketing is a process where you collect, organize, and analyze consumer data in such a way that you can use it to better communicate with existing or potential customers. It frowns upon the “one size fits all” standard marketing approach, adhering instead to the axiom that people respond better to more tailored, more personalized marketing.
There are two distinct categories of database marketing, depending on your type of business and who your end customer is.
Customer database marketing
Companies that sell their products directly to the consumer (D2C) can use customer data to identify specific customer segments, build personalized marketing campaigns, determine best channels for messaging, and/or offer certain products to certain customers at a certain time.
Historically, customer data consisted of:
- Customer name
- Postal address
- Phone number
Fast forward to today, and in part due to the popularity of social media platforms and the sheer volume of ecommerce transactions, you’ll no doubt be aware of the absolutely exponential rise in consumer data.
Now, through third party data sourcing, you can find out things like household size and income, credit score, duration of home ownership, education level, and company affiliation, and include that in a customer database.
Facebook alone has more than 2 billion active users across all its platforms, and there are now more than 400,000 google search queries every second. Big data has become an absolute phenomenon. In fact, according to Forbes, 90% of the world’s data has been created in the last two years alone.
Not surprisingly, the world of big data has allowed us to gather customer information that now includes even more granular details such as purchasing behavior, purchasing intent, retention metrics, website and email engagement, customer service communications, and social network activity.
A sophisticated marketer can use all of this consumer information to maximize and optimize their marketing funnel, whether it be to attract a new audience, fill up their prospect pipeline, test new products or offers, or to directly increase sales.
Business database marketing
Companies that sell their services and products directly to other companies (B2B) will use a business database to enhance their marketing strategy. Most of the time a business database will have smaller amounts of data than a customer database, since there are usually just a few really pertinent pieces of data.
When creating a B2B sales strategy, a typical business database might include:
- Company name
- Name of executives
- Company/employee size
- Estimated revenue
- SIC and NAIC codes
Having a detailed business database is especially helpful for account-based marketing (ABM), which relies on a more singular-focused strategy to attract a small number of highly valuable clients. For instance, a company may target a few dozen executives at a handful of companies, in hopes of landing a small number of very profitable clients, versus casting a much wider net and hoping to move people through a larger funnel.
Either way, having the right data will help you identify which of those accounts to go after to generate the B2B sales your business needs.
Ways to successfully utilize database marketing
There are many different ways you can analyze and parse customer data so you can always present the most relevant offers to a consumer. Using a more customized approach to marketing almost always results in more satisfied customers, which in turn tends to drive acquisition, engagement, and retention. No matter what type of business you have, which channels you use, or what tactics you prefer, you should be able to use at least one of the four main database marketing strategies.
1. Relevant customer data
When your company has accurate and relevant data on the customers that are currently buying or using your products or services, you’re privy to some truly unique insights. You can use that information to build highly relevant offers, launch new products, or message your customers in a medium or through a channel that’s most applicable to them.
For instance, if you run your own financial advice firm and you tend to attract high-net-worth clients, that’s an important part of your customer database, i.e, household net worth. Having that insight, you should perhaps focus on more sophisticated financial products like wealth management, derivatives, or real estate.
You probably also know that these clients are “high-touch” and expect advisor access through email and phone support, and so you need to set up your firm in such a way to support their expectations. Additionally, as high-net-worth individuals tend to highly value personal referrals, you should ensure you use a referral strategy for acquisition marketing and perhaps include it as some part of a loyalty program.
Pro Tip: Make sure you use standardized fields or drop-downs to avoid inaccurate customer data entry, especially for common data types or inputs that can be categorized.
2. Basic customer segmentation
Companies that use customer segmentation generally adhere to the notion that each individual is different, and treating them in a customized way will increase both satisfaction and sales. As such, companies might segment customers by demographic data such as age, gender, or location, but also by customer type (new or repeating) or buying behavior (spend, consumption, engagement).
For instance, if you know that immediate customer engagement is an important predictor of a satisfied customer over the long term, then it’s important to treat new customers differently than older customers.
You might segment new buyers to receive special and unique messages whose main focus is getting them to engage in your product or service, in the hope that they use your product, love your product, and ultimately, renew it.
Another example would be segmenting past customers, those that haven’t used your product or service in a long time, or in the case of a subscription business, a customer whose subscription has lapsed, expired, or been canceled. Any good marketer knows that it’s much more expensive to acquire a new customer than it is to re-engage an old customer, so many companies will implement “winback” programs.
A “winback” campaign is often used by marketers to segment past customers with unique marketing messages — discounted offers, exclusive promotions, and/or extended subscriptions. This is a super effective way to segment your customer database in order to generate sales with people already familiar with your brand.
Pro Tip: If you’re going to run unique marketing campaigns to specific segments of customers, don’t be afraid to really personalize it based on the segment, whether it’s a past customer, a new customer, or someone that’s spent a lot of money with you. Being honest and upfront about why you’re messaging someone can actually help increase conversions!
3. Advanced customer segmentation
As mentioned above, by dividing customers into different segments, companies are able to market to them differently and provide different offers at different times.
B2B advanced segmentation
In B2B sales, there are generally two different approaches to segmentation: horizontal and vertical segmentation, both of which can be very effective marketing tools.
In vertical segmentation, a company will segment based on industry or company type, and then tailor their offer to the needs of each company within the specific industry.
For instance, if you’re in charge of B2B sales for a project management software company, the product details and benefits you’d want to highlight will differ greatly if you’re selling to a financial services company versus a construction company.
In horizontal segmentation, a company will segment based on job title across various industries. If you know the challenges and opportunities that a CTO may face in choosing a new product, for example, then you can tailor your marketing to that individual based on their role in the company.
B2C advanced segmentation
Many companies take advantage of simple customer segmentation by using demographic data or customer profile data. However, there are a few ways to do more advanced segmenting that can result in more accurate targeting and an increase in sales, such as creating buyer personas, customer goal setting, and RFM analysis. In particular, RFM has shown to be a really powerful tool for any digital, ecommerce, or subscription business.
RFM stands for Recency, Frequency, and Monetary Value, and is a technique that analyzes each of these three customer traits in order to more effectively communicate to customers. The definitions of each trait can vary business to business, but generally, it measures:
- Recency: a measure of how recently a customer engaged with your brand (be it a visit, a purchase, or another form of engagement)
- Frequency: a measure of how frequently a customer is engaging with your brand (be it transactions or visits or email opens or CTRs)
- Monetary Value: a measure of customer spend or customer purchasing intent (be it total spent, average spent, or lifetime value (LTV) of customers)
RFM can become a very complicated process, but it can also be pretty straightforward as well. You are basically taking your database of customers and scoring or ranking them based on the three traits mentioned above, and then segmenting them based on their score. Once you have ranked your customers by Recency, Frequency, and Monetary Value, you can try answering questions like the ones below:
- Who are your most valuable customers?
- Who are your least valuable customers, or the ones most likely to churn?
- Which customers may respond best to an upsell offer?
- Which customers are most likely to renew your product or service?
If you can begin to answer some of the questions above, you can more effectively allocate your marketing budget and maximize the time you spend on valuable customers, while minimizing the time you spend on your least valuable (or least likely to renew) customers.
Pro Tip: If you’re going to do an RFM analysis, weight each component differently based on what type of business you’re in. For example, if your business sells a high-priced product with infrequent purchases, you may want to attach more weight to Monetary Value versus Frequency. Customize the analysis to the needs of your business.
4. CRM and database tools
Relationship marketing is an important part of any database marketing strategy, and in order to be a good relationship manager, you need a customer relationship management (CRM) tool.
The goal is to take all the hard work and analysis you did with regard to customer profiles and customer segmentation, and then to create marketing campaigns that will attract and retain those customers. A good CRM software will help you automate and oversee the entire customer lifecycle, end-to-end.
An intuitive CRM will allow you to employ your database management strategy, letting you:
- Track leads: Make sure you’re keeping track of the leads and prospects coming into your sales pipeline so you can maximize your outreach effort.
- Monitor campaigns: PPC (pay-per-click) campaigns could be effective for your company if you can segment based on visits to your website, and a CRM can help you monitor those data points.
- Foster loyalty: Create unique marketing campaigns for your most loyal customers, providing them with special offers and discounts to ensure they’re satisfied.
- Increase sales: Sometimes your best customers just need additional information to make a purchase, whether it’s product details or warranty information. If you’ve ever received a follow-up “this item is still in your shopping cart” email, then you’ve received an automated email from a CRM tool.
- Maintain data: Maintaining your database and purging it of old or outdated information can be onerous and costly, but having a CRM makes it simple and easy.
Pro Tip: Consider what matters most to you when buying a CRM. Is it price? Usability? Customer support? Check out our HubSpot CRM review and read about one of the Blueprint’s Top Ranked CRMs, with a “free forever” plan.
Is database marketing right for your business?
Sure, creating a marketing database can seem time-consuming and complex. Chances are you’re already doing something that’s considered database marketing, whether you have a special onboarding email tailored to new customers or if you’re using direct marketing to develop a telesales team.
And if not, that’s okay — take baby steps. There’s no need to jump directly into predictive analysis and RFM if you’re just starting, or if you’re new to working with data. Begin with some simple profiling, or creating a campaign to re-engage past customers.
You should try database marketing if you can:
- Embrace technology: You are willing to make the investment in technology. It’s an absolute must to spend capital upfront to invest in technology, not only to protect the data (platform/security), but in order to utilize it.
- Hire and retain great people: You are willing to make the investment in people. Having all the data in the world won’t do you any good unless you have smart analysts, marketers, and technologists that can create actionable marketing campaigns based on that data.
- Support an omnichannel approach: You are willing to spread your brand and product into various channels. Whether it’s retail, direct mail, phone, mobile, or desktop, the more you’re willing to meet your customers where they are, the more effective your marketing will be.
I can’t think of too many negatives with regard to creating a database for your customers since it’s such a great way to increase customer satisfaction and increase your revenue. However, there are definitely a few cautionary items to consider.
You may want to try other marketing methods if:
- You’re on a budget. Collecting information and data from your customers, cataloging it, analyzing it, and then acting on it is not a quick and easy task. It can be costly, depending on how complex your strategy is. And it will almost definitely be time-consuming, so if you’re on a tight budget, this may not be for you.
- Company uses disparate systems. Some companies have gotten themselves into a position where they use seven different systems to collect and organize information. If this is your company, it could be challenging to centralize it all in a way that would make it actionable and relational.
- Data protection seems scary. Security of individuals’ information is only becoming more and more relevant, and more and more complex. GDPR (General Data Protection Regulation), which passed in April 2016, is the most stringent and comprehensive data reform over the past 20 years. It’s becoming more popular and the essence of that reform is already moving from the EU to places like California and beyond.
But by and large, if you’re willing to invest some upfront time and money in your business, I can’t think of a better investment than creating a marketing database. After all, any entrepreneur or business owner will tell you they want to avoid putting their product or service in front of the wrong audience, while trying to ensure that it’s directly in front of the right audience, at the right time.
It’s not always an easy task, but database marketing is the most proven and valuable way to do just that.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jordan DiPietro owns shares of Facebook and HubSpot. The Motley Fool owns shares of and recommends Facebook, HubSpot, and Salesforce.com. The Motley Fool has a disclosure policy.