Database marketing is a technique companies use to obtain and analyze as much information they can about their customers, so that they can tailor their plans and sales decisions. It is one of the many subdivisions of marketing.
Put simply, you build up a database which allows you to identify customers, and then build a relationship with them that will help increase your sales.
Computer database technologies keep information about customer characteristics and how they interact with the company. This information can determine the long-term value of these customers to the company – this is useful for predicting the lifetime value of a customer on an on-going basis.
The database allows the company to identify customers and build relationships.
According to the American Marketing Association, database marketing is:
“An approach by which computer database technologies are harnessed to design, create, and manage customer data lists containing information about each customer’s characteristics and history of interactions with the company. The lists are used as needed for locating, selecting, targeting, servicing, and establishing relationships with customers in order to enhance the long-term value of these customers to the company.”
An important concept behind marketing is converting ‘strangers’ into ‘contacts’, and then turning ‘contacts’ into ‘customers’.
The information that companies collect about their customers is stored in a single marketing database.
Typically, this information is compiled from the following internal sources:
- catalog inquiries
- email requests
- warranty cards
- order information
Database marketing is part of a company’s direct marketing effort and improves the relationship a company has with its customers.
Maintaining and establishing a good relationship with customers helps companies boost customer retention – an crucially important factor for growing a sustainable business.
Database marketing does this by sending the right message to a desired audience.
You can use database marketing for market research, and to create reward programs for loyal customer.
The benefits of database marketing include increased profits – through improved target marketing efforts, and more sales – using database marketing allows companies to cut down on waste and avoid unprofitable market segments.
The 4 fundamentals of database marketing
1. Determine what information you want to know. Any database will do to get started – convert past records into a database if you haven’t – starting a database is better than having no database at all.
2. Update the database. Setting up a database and not updating it is not very valuable. So, be sure to add information on a consistent basis.
3. Analyze the data.
4. Act on the data that’s been analyzed to extract customer information. An example of leveraging the value of a business database is using the information and can cross-referencing it to find out customer purchasing habits.
Database marketing and the law
Since the 1980s, database marketing has mushroomed into a mega-business. It has also come under growing scrutiny from privacy advocates and government regulators.
The European Commission has set up a set of data protection regulations that determine what uses can be made of customer information.
In the United States, there are several state and federal laws, including the Fair Credit Reporting Act (FCRA), the Health Insurance Portability and Accountability Act (HIPAA), and a number of programs that enable consumers to suppress their phone numbers from telemarketing.