Business-to-business database marketing: the future is now!

Business-to-business database marketing has evolved into a $1.3 billion dollar industry, representing 20.6 percent of total business-to-business direct marketing expenditures.

In recent years, business-to-business marketing has become the fastest growing sector of direct marketing. At the

same time, database technology has gone through a major shift and evolution. All of which has raised many questions for marketers. Below are answers to some of the key questions concerning the changes in database marketing in the business-to-business arena, and where those changes are bringing us now and into the future.

How has business-to-business database marketing changed in the past few years?

Business-to-business database marketing has not so much changed, as evolved - beyond nearly anyone's expectations. In 1994, business-to-business database marketing was still in its relative infancy. A handful of high tech, shipping/package delivery and telecommunications firms were leading the way with construction of comprehensive customer marketing databases that could provide a complete view of the total customer relationship. Today, only a few years later, business-to-business database marketing has evolved into a $1.3 billion dollar industry, representing 20.6 percent of total business-to-business direct marketing expenditures, according to an Outfront Marketing Research Study.

Overall spending on business-to-business direct marketing has grown at a considerably faster rate than spending on consumer direct marketing. The Direct Marketing Association, in a recent study, projected spending on business-to-business direct marketing activities to surpass consumer direct marketing spending within the next five years. According to a September 1996 Rome Report study, the growth in business-to-business direct marketing will be driven by growth in key business-to-business sectors such as high technology, telecommunications and package delivery. In sum, the growth in these markets is translating into increased expenditures on database marketing as companies struggle to build and grow their customer relationships.

How has technology changed the face of business-to-business database marketing?

There have been several technology trends in the past few years which are impacting database marketing in general, and business-to-business in particular. One trend is the evolution of Internet technology, its growing acceptance and consequent impact on electronic commerce. Gartner Group reports that businesses, not consumers, are driving the future of on-line commerce and will shape its future direction.

Another trend is the migration toward data warehouses and enterprise-wide computing systems that touch all parts of an organization. Historically, marketing systems have been segregated from the operational systems of many firms.

A third trend is the increasing capacity of technology to enable marketers to obtain fast answers to marketing questions. More than ever, companies need to be able to react quickly. Understanding what products and services any particular customer is using - in what volume (how much?), in what size (how large?) and in what frequency (how often?) - and monitoring ongoing communications and activity with that customer, can be critical to a company's success. The net result of evolving technology is that business-to-business database marketers have more options and greater capacity to address their marketing requirements than they ever have before.

How has business-to-business database marketing remained the same?

Getting, keeping and growing customer relationships is still the name of the game for business-to-business marketers. Marketers still need to focus on three principal objectives, each of which is highly dependent upon having a robust and granular marketing database. These objectives are: 1) customer acquisition, 2) cross-selling or up-selling and 3) customer retention. For business marketers, the importance of each of these activities is often magnified due to the high relative value of many business-to-business customer relationships.

As individual customers, businesses typically have greater purchasing power than consumer customers. With competition increasing in sectors such as high-tech, telecommunications and package delivery, the long-term importance and necessity of knowing your customers and understanding the dimensions of your customer relationships is becoming more critical to the future of your business. Building loyalty and retaining your customer relationships for the long-term has never been more important. For this very reason, the role of database marketing has never been more critical or more central to organizations future.

What is the value of database marketing?

Successful acquisition, retention and cross-sell efforts, when achieved through database marketing, represent one of the most cost-effective alternatives for building customer relationships, especially when contrasted with cost-intensive approaches such as direct sales and advertising. A number of studies have shown the correlation between the number of products or services used and overall relationship longevity and profitability. The increase in costs associated with new customer acquisition dictates the importance of retention and growth once a new customer relationship is established.

Business marketers are increasingly relying on the power of marketing databases to selectively target their best business development opportunities, to allocate resources in proportion to the potential of those opportunities, and to reduce or eliminate redundant or low-payback marketing activities. Executed in combination, these actions help companies cost-effectively maximize their customer base, as well as prospective customers.

Through these cost savings and increased efficiencies lie the payback and justification from a financial perspective. A simple arithmetic analysis can be used to highlight the savings and return on investment, although it should be understood that the real benefits from database marketing are borne out over time through long-term customer retention. The justification from a customer relationship perspective cannot even begin to be quantified. The value of your customer relationships is priceless.

What challenges face companies embarking on database marketing?

It is important for business marketers to understand and appreciate that building a business-to-business marketing database is considerably more complex than building a consumer marketing database. The reason is that business relationships tend to be far more complex. This complexity is reflected in the four principle challenges facing any organization that seeks to implement a marketing database of its business customers. These challenges are: 1) defining the "customer," 2) capturing good customer data, 3) linking customer data to provide a relationship view, and 4) measurement and tracking.

Business relationships tend to be more complex than consumer relationships because business entities, and transactions with business entities, are simply more complex than transactions with consumers. It is important to understand exactly who is the business customer. Is it a corporation? Is it a company within a corporation? Is it an actual facility or site, with an associated physical mailing address? Is it a person, a contact at a site who makes purchase decisions on behalf of the company they represent? Is it multiple contacts, or one or more of the above, varying from situation to situation depending upon the product or service that is being purchased? Is the decision maker, or decision makers, for a large computer mainframe purchase, the same decision maker(s) for basic office supplies? The answer of course is that purchase decisions within businesses are frequently made or influenced by a variety of individuals who, more often than not, cut across departmental lines and physical locations.

All of this makes it more difficult to build a profile of the business customer and presents one of the critical challenges in any business-to-business database marketing initiative.

How valuable is customer purchase history for database marketing?

Extremely valuable! Purchase history data represents the very best starting point for constructing a customer marketing database, since past buying behavior has always tended to be the best predictor of future behavior. In the case of business customers, transforming purchase history data, which is usually captured and maintained at an account-level on accounting systems, into customer data, is a significant challenge. For example, many accounting systems will carry a ship-to, a bill-to and a sold-to address. However, whereas a ship-to and bill-to address is likely to be populated consistently, good information on a sold-to address is likely to be less complete.

The challenge of capturing good customer data is magnified in the cases of those companies that do not sell direct, and who employ distributors or retailers. In these cases, the customer is often unknown and this information unobtainable, unless registration and warranty cards have been completed. When available, customer purchase history can represent a gold mine for a database marketer.

What are the challenges of constructing a customer profile?

Developing a customer profile is a primary requirement of any good database marketing system. Having captured data on business customers, the critical challenge is to integrate and link this information so as to provide a profile of the customer relationship. The challenge is magnified in the case of businesses due to the complexities presented by the way in which businesses are organized and do business. For example, businesses may have offices at multiple locations, may employ trade names or "doing business as" names, may be parent or subsidiary companies and may use suite or post office box addresses.

Because there are no universally accepted standards for business names and addresses, it is common to find business names expressed in abbreviated, truncated, transposed or acronym form. When constructing a business-to-business marketing database, it can be very helpful to rely on the expertise of a company or service bureau that has developed specialized applications and algorithms designed expressly for tackling the complexities of business names-and-addresses.

Why is tracking and measurement critical to success?

A marketing database provides the starting point for moving from intuitive marketing to scientific marketing. Understanding the make-up of customer relationships is vital for any organization that depends upon their customers for the future growth of their business.

Every business should have the means to answer certain critical questions about each individual customer. Who are my customers? What products and services are they using? How often am I communicating with my customer? What is the customer telling us, both through their words and through their actions? Which customers provide the greatest value to my organization? There are also certain questions to be answered which help formulate the bases for measurement. When promoting to a business customer, for example, should you track at a contact or site level?

In many instances, a mailing or catalog may be sent to a particular contact within an organization. That mailing may then be passed along to others, and may result in a purchase by someone other than the original mailing recipient. How is that correctly tracked? If tracked at a contact level, the connection between a mailing and a purchase may not exist. If tracked at a site level, there may be a better likelihood of determining that a purchase was influenced or resulted from a mailing.

In sum, a business-to-business marketing database provides a means for measurement, and an excellent source for answering critical questions about your customers, as well as understanding their future potential purchase behavior.

Can prospect databases be used to achieve a similar benefit?

Absolutely! Prospect databases represent a fast growing area of business-to-business database marketing. A number of companies are implementing databases that combine lists of prospects from many different sources, including subscription lists.

These databases tend to be considerably more volatile than customer databases because the lists of companies and contacts change on a much more frequent basis. The objective with a successful prospect database is to arrive at an optimal mix of subscription lists and additional sources that yield the highest number of conversions to new customers. Prospect databases provide business marketers with a powerful tool that can supplement customer-directed marketing activities.

What are some key considerations about the future of business-to-business database marketing?

Database marketing is growing in acceptance, importance and value for some very simple reasons. The marketing database of a company can represent the repository of all known information about each customer. The future of database marketing will lie, in part, in our ability to use the information we have gathered on each customer to support direct channels of distribution, to establish a dialogue with each customer and to provide a feedback mechanism which tells us what our customers need and desire. Responsiveness will be critical.

The ability to assimilate and adapt to our customers' needs will be vital. Good customer relations and a compelling marketing message will always be essential to maintaining and building customer loyalty. However, the process starts with an understanding of each customer, their history and their needs. A marketing database provides the foundation for customer contact activities. For this reason, the value of a quality marketing database and quality database marketing cannot be underestimated. Know thy customer!

Randall Bean is senior vice president, business development for new and emerging markets at Harte-Hanks Data Technologies in Billerica, MA. The new and emerging markets group focuses on industries including high technology, telecommunications, package delivery and key business-to-business sectors.