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Drilling Down Newsletter - March 2001 -
Geodemographics, Database Marketing

In this issue:

#  Best of the Best Customer Retention Links -
    *** Alert: These expire soon!
#  Getting "Must Read" Links Before they Expire
# Thunder Lizard - Web Marketing 2001
#  New Article: Getting Up to Speed on
    Database and Direct Marketing
#  Questions from fellow Drillers: Geodemographics
Hi again Folks, Jim Novo here.  
Let's do some Drillin'!

Customer Retention Links

The following are must read articles on measuring and managing customer retention.  Their "free status" on the DM News website expires 30 days after the publication date listed.  If you don't read them by then, you'll have to pay $25 to read them in the DM News archives.

Note: I provide links to many more articles like these as they become available on the Drilling Down site.  If you don't want to miss any of them, you might want to check this page weekly for updates to the article links:

By the way, the new publishing implementation at the DM News web site creates URL's so darn long they get all broken up in the newsletter, so I have to "link to the link" on my site to get you a clickable link.  Sorry for the "doubleclick."

*** Alert *** The links below expire very soon!

Note to web site visitors: These links may have expired by the time you read this.  You can get these " must read" links e-mailed to you each month 2 weeks before they expire by subscribing to the newsletter.

* Customer Loyalty Without the Points 
March 2, 2001   DM News
Customer Retention, we call it.  Fact is, there is a tremendous amount you can do to keep customers with you and raise their value - and it's not nearly as hard as all the CRM companies keep telling you it is.

* Fighting Internal Resistance to CRM
March 2, 2001   DM News
This article has some absolutely classic examples of the pitfalls inherent in "silo thinking."  Don't laugh too hard, this stuff happens all the time - and you're next!

* Customer Relationships in the New Age
March 2, 2001   DM News
So you're going to pick on RFM, eh?  If you're not using any method to assess future customer value and likelihood to respond, RFM is a heck of a lot better than nothing.  But I agree, the way RFM has been used in the past, as a "snapshot" of behavior, is not optimal.  You have to look at behavior over time, which is exactly what the Drilling Down book is about. http://www.jimnovo.com/fresharticles.htm#cr

Getting "Must Read" Links Before they Expire
Once again this month the "Must Read" Links list contains soon-to-expire links.  Everyone who responded to my query in last month's newsletter liked the idea of always having 2 weeks to read the articles before they expire.  So starting in April, you will receive a list of no more than 5 Must Read articles mid-month (without newsletter content), and a list of links in the regular end of the month newsletter.

As a reminder, these are links to short-in-supply articles containing customer retention metrics, tactics, and case studies.  Hopefully this approach will eliminate the "you're an idiot" e-mail I get every month regarding DM News links expiring before people get to read them.  Glad to know people appreciate the service; this little fine tuning should fix the last problem.

Thunder Lizard - Web Marketing 2001
Monterey is a pretty place, but there were a ton of web marketers there for more than the scenery.  You'd recognize many of the presenters (including myself) from their contributions to ClickZ - Nick Usborne, Geoff Ramsey, Rick Bruner, Sean Carton, Richard Hoy, Tom Kuegler, Kim MacPherson, and Eric Ward were all there, delivering the "How To" Thunder Lizard is known for.

It was great to meet some of you, and thank you for your kind words on the Drilling Down Project book, site, and newsletter.  The word is spreading and it appears the original mission of this Project - to show people how to take advantage of customer retention methods the pros use without incurring all the costs - is on target and well timed.  The backlash against over-complicated and high cost CRM is growing, and it seems folks really appreciate the alternative Drilling Down offers.

Some of what I learned at the show:

Complex and high cost CRM applications are appropriate for some businesses - the presentation by Jim Dickie of ITG on medical sales CRM was absolutely stunning.  I couldn't stop thinking about it.  A $26 million CRM implementation using suggestive selling on sales rep PDA's paid back in 6 months.  The key to success was in the planning and partnership with vendors who supplied the detailed information and upsell / cross-sell criteria on the 30,000 products the sales force handles.  Stunning was the only word for it!

Direct / Database marketing will rule the web.  Period.  And many, many offline companies are completely unprepared for this, because they have never used their customer data for anything but routine billing tasks.  This continues to amaze me; I had no idea people were so profoundly unprepared for database marketing.

Web marketing people have somehow skipped a whole generation of marketing learning.  CRM software was supposed to "do it all"; people didn't really have to know database marketing techniques or have any hands-on experience .  The truth is, software is just a tool, and experience matters.

There is a very real shortage of people who know how to take advantage of all CRM software offers.  Think about how much of the functionality you use in Microsoft Word.  The reason you hear about so much "failure" regarding CRM marketing achieving ROI is simply people don't know how to take advantage of the software functionality.  They're drowning in data and the problem is largely self-inflicted.

Bottom line - for most companies / people, using this software is like trying to get a Ph.D. without going to high school or college first - a whole generation of "how to" knowledge, the classic texts of database marketing, were never read or practiced by CRM users, and the result is a high failure rate on the marketing side of CRM.  I'm afraid there is no easy solution for this problem, because it's experience more than reading  books that drives successful database marketing.

Solutions?  Hire or rent yourself a marketing person with real database marketing experience (10+ years) to head your CRM project (not just a stats person, either - their view is too limited).  Where to look?  Mail order / catalog or other database marketing companies.  People should have proven results in the ROI area - ask for specific wins!

New Article: Getting Up to Speed on 
Database and Direct Marketing
I thought people could use a little help in the database marketing area - that's why I wrote the Drilling Down book.  But I had no idea how serious this "lack of knowledge" problem was.  As part of this more complete realization described in the previous section, I thought it might be a good time to make some suggestions on how people can try to get themselves up to speed on database marketing.  So I wrote an article covering 5 actions you should take if you happen to be in the unfortunate position of using CRM with no real database marketing experience.  You'll find this new article here:

Questions from Fellow Drillers
Short question this month to balance out the longer sections above.  Don't want to take too much of your time with the newsletter.

Q: Jim, do you know anything about "geodemographics"?  We have vendors calling us that want to "enhance" our database with demographic information based on the physical location of our customers.  Will this help our marketing efforts? 

A:  Hmmm...it might.  Geodemogrpahics, for those that don't know, consist of census and other information coded to the zip, zip+4, or census tract level.  The idea is if you know where your customer lives, you can apply the "average demographics" of the neighborhood to your customer and perhaps learn something valuable for targeting campaigns.

As with any other database marketing technique, you have to test it.  Don't do anything without getting a sample of your database enhanced and testing it versus an un-enhanced version for performance.  Reliable and honest vendors of geo-dems would never refuse such a  request, because if they are pros, they know the answer to the above question is "it all depends on your business and customers."

That said, here are some issues to consider:

1.  Customer behavior will always be a better predictor of future profitability than any kind of demographics, so using customer behavior to drive high ROI campaigns will always be more efficient than demographic enhancements ever will be.  And besides, behavior data  is free to you; geo-dems will cost you money and lower your ROI.  In other words, the profitability of a campaign based on geo-dems has to improve enough over the un-enhanced campaign to at least pay for the cost of all the enhancements to your database.

2.  If your customers are concentrated in certain zip codes, geo-dems may be helpful.  If they are spread thin over many zips, it probably won't.  Think about it.  If the geo-dems are the average for the geographical unit, if  you only have one customer in the zip (zip+4, census tract), what is the likelihood your customer really looks like the average?  Think about zips in your neighborhood - is there at least one elderly complex in the upscale zip, one warehouse in the retail zip, etc.?  The lower your customer penetration, the higher the likelihood the geo-dems won't represent your customer.

3.  Geo-dems are most helpful in an advanced modeling environment, where you have already constructed basic models of customer behavior (like the RF technique described in my book) and are looking for extra "lift" to  these models.  Adding geodemographic information to the modeling mix, particularly when you are using data mining, can help improve response rate, average sale, etc. because even if the dems aren't completely accurate, they can be predictive (I won't go into why in  this space).  We did a project like this at Home Shopping Network and it turned out just fine.

4.  Geo-dems are really hot for retail applications like choosing sites for stores or creating sales territories, where a large percentage of the population are likely customers.  I used them to estimate the TV Shopping sales value of a cable franchise with great accuracy.  These applications work because the average demographic becomes very meaningful when the customer penetration potential exceeds 50% - 60% of total households in the geographic unit. 

I know there are people on this list who work at geodemographic enhancement companies.  Equal time for you in the next newsletter if you'd like to challenge or augment what I've said here. 
NOTE:  Got a question on database or
high ROI customer marketing?  What are
you waiting for?  Ask me!

That's it for this month's edition of the Drilling Down newsletter.  If you like the newsletter, please forward it to a friend!  Subscription instructions are at the top and bottom.

Any comments on the newsletter (it's too long, too short, topic suggestions, etc.) please send them right  along to me, along with any other questions on customer Valuation, Retention, Loyalty, and Defection.

'Til next time, keep Drilling Down!

Jim Novo

Copyright 2001, The Drilling Down Project by Jim Novo.  All rights reserved.  You are free to use material from this newsletter in whole or in part as long as you include complete attribution, including live web site link and/or e-mail link.  Please also notify me as to when and where the material will appear.


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