Commentary

Increasing Profitability Starts With Better Data

In this tough economic climate, companies are doing everything they can to optimize profitability. Or are they?

 

We have spoken with dozens of companies recently about the state of their customer data and how they are using those data to support one-to-one marketing-and nearly all of them are leaving money on the table by not optimizing in this area. Here's why better data are worth the effort, and how to take this route to increased profitability.

Linking Data and Profits

There are two important connections between data management quality and profitability.

The first benefit is containing costs. Having a world-class integrated marketing database helps keep your one-to-one marketing costs lower by eliminating record duplication across channels. This helps you avoid waste that comes from record duplication, not to mention the negative customer perception when they receive multiples of the same communication.

The second link between data management and profitability is marketing effectiveness. Having your data integrated and organized properly will enable more accurate analysis and improved levels of personalization-the single biggest change that can be made to improve the effectiveness of one-to-one marketing. Having a complete picture of each customer's history with your company is the first step towards higher levels of personalization, yielding response and conversion rates that can be two or three times higher than single-version communications.

What's The Problem?

Two common problems prevent companies from increasing profits through improved data management.

The most fundamental problem is that companies haven't done the math on the potential profit upside. Assessing the level of savings that can be achieved through cleaner data is relatively straightforward. You just need to estimate the amount of record duplication and bad data that exists and then calculate the savings in communication costs you would realize by fixing those problems. Figuring out the gain in profits from more personalized messaging is trickier. You should consult an expert on this.

The second most common problem is failing to recognize that marketing data management is a highly specialized area of expertise and that general technology skills will not be enough to do the job well. The assumption that internal IT resources will be able to do as good a job as external experts is the primary cause of data quality problems.

This assumption is often made by senior management and procurement staff who have little knowledge of marketing and IT details. Despite IT claims, a marketing database is not just another database; it has very unique requirements not found elsewhere in the organization.

Investing in the Right Tools

A lack of knowledge and experience with marketing data management also leads to poor decision-making in choosing the right tools. Often, companies overpay for marketing-related software because IT is driving the process and those staffers don't have a good understanding of what really will drive profitability.

This profitability knowledge is especially needed to select the software required to drive more personalized messaging. You will need a tool that can support multiple channels (email, direct mail, SMS), allows for customer behavior to trigger a message and can generate personalized messages that match the creative to the individual.

There are enterprise solutions and lower-cost options, but keep in mind that you don't necessarily need all the bells and whistles to create more effective programs. The most important ingredients are cross-channel integration and the ability to personalize the messages.

Getting Started

The best first step is to evaluate the state of your marketing data, using either internal resources or an outside consultant.

Once you have evaluated where you are and the organization is ready to move forward, you will need to make the critical decision on whether to work on this internally or outsource it.

If you are not required to use internal resources, outsourcing this work will generally provide you with a superior solution-but it can be expensive. Most marketing database providers will charge a minimum of $25K - $30K per month to manage a marketing database. There are some providers who can manage your data much more economically on a program basis, but this generally slows execution.

The best first step is to consult with an expert. Even if you end up having to work with internal resources, an external expert will help you evaluate what needs to be done and will help you craft a plan that keeps missteps to a minimum.

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