Part 1: Intro to Strategic Database Marketing

While some small business owners are using it to their advantage, most others aren’t. The purpose of this marketing tip is to get you thinking about using the power of database marketing in your own business.

First, let’s define the term. Strategic database marketing is simply the ability to store customer data and then to manipulate that data in order to uncover various marketing opportunities.

Every small business owner needs to keep a database of customer names, contact and transaction information. And no, you don’t need a sophisticated program to do this. In fact, I recommend Microsoft Excel for virtually every small business.

But how does one actually “do” strategic database marketing? While there are some very sophisticated methods out there, I want to focus on two extremely simple but powerful concepts.

But before we get to these ideas, let me ask you a question. As a small business owner, who do you think would be more valuable to you – someone that visited your website just yesterday or someone that visited 8 months ago? If you said the person that visited your website yesterday, I would agree.

Suppose that you placed a “most recent” transaction date in your customer database every time a customer made a purchase. In other words, if a customer bought your widget on 2/06/08, you entered this transaction date within their customer record, overwriting the previous transaction date. Imagine sorting your entire database in order of most recent transaction to least recent transaction.

What you now have is a database sorted by customer Recency. What exactly can you do with this information? How about this. Recency is the number one predictor of future behavior. The more recent someone has done something, the more likely they are to do it again. This has been proven time and time again with companies that use the power of strategic database marketing!

Now let me throw another idea your way. Suppose you have two customers and one of them ordered twice within the past 12 months and the other ordered four times within the past 12 months. Which one is more valuable? Well, you might say it depends on how much they spent and that would be somewhat true but forget about the amount spent for now. I would argue that the customer that had 4 transactions is more valuable than the one that had only 2 transactions (within the same period of time.)

Think about the web for a moment. Is the person that visited your site 3 times over the past month more valuable than the one that came only once? Of course – even if neither of them made a purchase.

So now, in addition to adding recency data to your customer database, you also add the number of total transactions since that customer has been with you. Now, you’re database shows not only the date of the latest transaction (Recency) but also shows the total number of transactions (Frequency.)

By sorting your customer database by Recency, you have an incredibly powerful indicator of future customer behavior. In fact, you can now reallocate your marketing dollars to the customers that are the most recent and have the highest frequency of transactions. These are the folks that will most likely respond to your marketing efforts.

A small business that sends the same piece of literature to every single customer every single time is just wasting money – period. By using Recency and Frequency data, you can budget a much larger percentage of your marketing dollars to the customers that are much more likely to respond. That’s using the power of strategic database marketing to your advantage.

Make no mistake about it, every small business needs to be taking advantage of these concepts. Recency and Frequency are two powerful tools you can’t afford to ignore! Future articles on this website will focus on how to set up your database, how to sort Recency and Frequency data by quintiles, and how to use this data to set up customer retention programs.

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