Think marketers are in it for the long haul? Think again, unless the definition of “long haul” has come to mean next quarter. According to Direct's annual survey of database marketing practices, marketers are relying less on long-term and lifetime value (LTV) analysis these days.
Which is odd, because the firms doing these higher-end calculations are more bullish on the future, and report better results in quarters past. They also have spent more, and plan to continue spending, on upkeep for their databases.
Additionally, those marketers that calculate LTV are among the most likely to increase their direct marketing budgets in 2004.
Who calculates lifetime value? Consumer firms, largely. Nearly half (49%) reported estimating lifetime value, compared with 38% of the mixed-focus firms and 16% of the B-to-B marketers.
There's also a correlation between a marketer's size and its inclination to devote resources to this. Thirty-nine percent of those with annual revenue above $100 million do so, vs. 28% of those generating between $10 million and $100 million, and 29% that have sales below $10 million.
Among a number of criteria analyzed, a marketer's willingness to evaluate LTV, as opposed to customer segment served or revenue generated, yielded the biggest disparity in anticipated DM spending in 2004.
Broken out by customer group served, 43% of business-to-business marketers planned an increase in DM expenditures in 2004, compared with 58% of consumer firms and 55% of mixed-focus companies (those that market to both businesses and consumers).
In contrast, 60% of firms that calculate LTV intend to boost their DM spending, compared with just under half of those that don't. The anticipated growth echoed the gains each segment saw in 2002. Asked about last year's fourth quarter database investment, 42% of the consumer firms said it went up, in contrast with 43% of the mixed-focus firms and 26% of the B-to-B marketers.
But the biggest split was between companies that reported doing LTV calculations. These were more likely to have seen an increase (49%), compared with only 31% among those firms that don't.
So why are marketers pulling back from LTV analysis? “It's a little more expensive, and people are relying on the tried and true,” says Lansing Chew, group marketing manager at Orange, CA-based Experian.
Chew continues, “There is a tendency to refresh old analyses. If [a direct marketer] had some sort of analysis, [it] would lean toward those, as opposed to [investing in] new LTV calculations.”
Still, the depth of the pullback from LTV, especially in the B-to-B sector, surprised Chew.
“I believe there is intrinsic value in LTV. Companies may feel it's too expensive, or they may not have the research capabilities. I have had some sense of that, but not to the extent that it was reflected in the survey.
“We are seeing some decrease in LTV calculations, but [also] some increases in profiling, mapping and penetration analysis,” Chew adds. “Maybe this is the poor man's version of some analyses, trying to spend just a little bit less to make sure we are successful. It's a funny kind of proxy for LTV.”
If marketers are still doing high-level database analysis such as LTV, it stands to reason that they're more likely to make further investments in their databases. And they are. Among those calculating LTV, 54% indicate at least some level of database investment during the remainder of 2003, vs. 34% of those not calculating LTV.
Among the three customer focus segments, half of the mixed-focus firms, 42% of consumer marketers and 32% of B-to-B marketers saw at least some uptick in their database investment spending for the remainder of the year.
Just over a third of all respondents plan to upgrade or make other investments in their databases during the next 12 months. Mixed-focus firms were the most aggressive about this, with 39% indicating they would do so, while 32% of the B-to-B firms and a like amount of consumer marketers indicated such plans.
While 36% of the firms that do LTV analysis plan investments, this result was not significantly different from the 35% of companies that don't do it, which also anticipate spending money on their databases. The median investment amount cited across all respondents was nearly $55,000.
However, companies that calculate lifetime value are the most likely to believe that their investments in database technology will pay for themselves. While overall 73% of those surveyed expected to make their money back, 92% of the respondents that use LTV equations expected to fully recoup their investments, compared with only 63% of those that don't.
Among firms that primarily target consumers, only 52% believed they would see all of their layout for database hardware recovered, compared with some 75% of the B-to-B marketers and 91% of the mixed-focus companies.
Does their historical level of realized revenue support this faith? You bet.
Asked about fourth quarter 2002 revenue when compared with third quarter sales, those respondents indicating that they do LTV were more likely to have seen a revenue jump (57%) than those not calculating it (40%). They were more liable to have seen it than small, medium or high-revenue firms (42%, 42% and 50%, respectively), or any specific customer focus.
Only 41% of B-to-B marketers, and 39% of mixed-focus firms reported sales increases, while consumer firms came close, with 55% saying their sales were up — albeit during the holiday shopping season.
These folks were most inclined to be optimistic about the remainder of 2003's revenue as well. Some 72% anticipate their revenue will increase, compared with 57% of those that don't do LTV analysis at all. And that 72% outstripped any of the revenue splits (59% lower, 60% middle, and 64% upper) as well as the business focuses — 62% B-to-B, 67% consumer and 54% mixed focus.
Some of the resistance to LTV may be a result of the economic slowdown, speculates Richard N. Tooker, senior vice president for database and interactive marketing at DMW, a direct marketing agency in Wayne, PA.
“A drop in use of LTV across the board might have to do with the economic situation we're in and short-term thinking than any marketing decisions,” Tooker says.
“[If I were running a company] an easy place to find a couple of bucks would be to not spend quite as much on advertising and marketing. I know I probably should spend the money, but right now I gotta satisfy Wall Street.”
But Tooker also notes that companies are spending more on sales force automation programs such as SalesLogix or Act, and using these programs for prospecting and personalization.
As it happens, if respondents calculate LTV, they are also more likely to customize their products, services or marketing messages. Thirty-six percent of all respondents that calculate LTV do so, compared with 24% among those that don't.
Regarding the databases themselves, the universe for most B-to-B marketers is smaller than that for most consumer marketers, and their respective database sizes reflect this. Consumer marketers reported average database sizes of nearly 10.3 million records, vs. just under 1.6 million for B-to-B respondents and 1.4 million for mixed-focus firms.
Broken out by which respondents do lifetime value analysis, those indicating they do had databases that averaged 8.1 million records, while those that didn't averaged 1.8 million.
A higher percentage of consumer companies tended to house their databases off-site than those in other sectors. Only 73% said they maintained their own files, compared with 94% of the B-to-B firms. (Overall, some 76% of all the companies surveyed indicated they kept their marketing databases in-house.)
Databases, of course, do not run themselves. Nearly 22% of all respondents indicated their companies expanded staff in the departments responsible for database marketing or customer relationship marketing during the past six months. Another 59% said the number of employees remained constant.
Most of the increase in personnel came from consumer companies. More than 27% reported adding employees, compared with 21% of the mixed-focus firms and 17% of the B-to-B marketers.
methodology
This survey was conducted for Direct by Primedia Business Market Research, an in-house research department. It was e-mailed to 3,906 Direct subscribers working in sales, marketing or telemarketing management, or fulfillment and data processing. These individuals were chosen on an nth-name basis (a representative sample of all subscribers).
Three copies of the survey, offering recipients a chance to win one of five $50 Amazon.com gift certificates, were sent out between April 30 and May 13. Results are based on 241 returned surveys.
Respondents identified themselves as sales, marketing or telemarketing managers (59%); corporate or general managers (15%); circulation, list or media professionals (12%) and advertising or promotion managers (6%). The remaining 8% came from such sectors as fulfillment and data processing management, production and creative management, editorial, copywriting and information technology.
The mean annual corporate revenue specified was $246 million. Current-year revenue reported by survey participants was as follows: under $1 million (11%); $1 million to $2.5 million (10%); $2.5 million to $5 million (11%); $5 million to $10 million (7%); $10 million to $25 million (12%); $25 million to $100 million (19%); $100 million to $500 million (12%); $500 million to $1 billion (3%); and more than $1 billion (18%).
Some percentages may not total 100% due to rounding.
