A Nation of 300 Million Customer Records

The Dow Jones Industrial Average closed above 12,000 for the first time last Thursday. Two days earlier, the U.S. Census Bureau announced that the United States has now officially became a nation of 300 million people. What do the Dow Jones industrials and the U.S. population have in common, other than having both set records?

For one thing, both are highly dynamic. Of course, stock prices and markets fluctuate on a daily basis. And while the U.S. population only grows larger with each passing day, as indicated by the parking situation at your local megamall, demographic statistics point to a continuous state of flux as well. This year, for example, there will be more than 40 million residential moves. There will also be 4 million births, 2 million marriages, 1 million divorces, 1 million retirements, and 2.5 million deaths, give or take a few hundred thousand.

For those of us immersed in the world of database marketing, these population shifts speak to the importance of customer data integration (CDI) as a key enabler of customer-centric marketing, improved relationship management, and ultimately, increased revenue growth. It also speaks to the importance of CDI in the context of cost reduction (for instance, sending catalogs to dead people is never a good idea; no matter how compelling the offer, you’re unlikely to elicit a favorable response).

Clearly, after years of experimentation, with often less-than-satisfactory results, companies have come to view CDI as a critical success factor and are taking advantage of recent innovations in CDI solutions to better propagate a single view of the customer across the organization. Aaron Zornes, founder of the aptly named Customer Data Integration Institute (www.the-CDI-Institute.com), a new industry analyst group based in San Francisco, predicts that the market for CDI solutions (software and services) will exceed $1 billion by 2008.

Striking the right balance

Two primary criteria in CDI solutions are match rate – the proportion of records that are successfully matched to a reference database ID – and precision, the accuracy with which those matches truly reflect the individuals and households concerned. These two criteria tend to trade off against one another in that being overly aggressive on matching by loosening rules to achieve a hit against a reference database can lead to poorer accuracy.

For example, James Brown (the Godfather of Soul) and Jim Browne (his next-door neighbor) may be viewed as one and the same because they’re “close enough.” But in fact they’re two different people, only one of whom is included in the reference database. By combining these two names, you increase the match rate but decrease the precision.

In marketing to potential consumers in situations where the offer has low risk and low cost, companies tend to err on the side of a higher match rate, sacrificing precision in the process. In situations where there is significant downside – for example, a preapproved offer of credit – companies will tend to err on the side of caution and focus on precise matching over volume of match rates. They would prefer to throw Jim Browne away rather than risk sending him an inappropriate offer.

In short, most applications tend to cluster around one of two universes: a “marketing oriented” universe and a “risk oriented” universe. Providers of CDI solutions with a focus on marketing may sacrifice precision for match rates, while those with a focus on risk may emphasize precision over match rate.

Whatever the approach, CDI is merely a means to an end. Instantly resolving discrepancies in the spelling of customer names and addresses and the variations in phone numbers, birth dates, and other numerical identifiers reduces mailing costs while increasing response rates as well as the overall prospect universe. Bigger picture: CDI provides the foundation for deploying decision management systems that enable companies to deliver highly relevant customer experiences, services, messages, and offers. For marketers, it’s a prerequisite for doing business in a nation of 300 million people.

Jeff Zabin is coauthor of “Precision Marketing” (Wiley, 2004) and a director in the Precision Marketing Group at Fair Isaac. He blogs at www.paretorules.com and can be reached at [email protected].