Vendors, take note: Direct marketers will spend an average of nearly $250,000 for database upgrades this year. And they’re confident these expenditures will pay off.
What’s more, DMers now have the skills to determine if they will. Most look at the number of customers generated, and the revenue and profit they bring with them, according to Direct’s 2006 database practices survey.
What will they spend the money on? Twelve percent of marketers’ budgets will be set aside for database development and maintenance. Seventy percent plan to install or enhance data mining capabilities, while 40% want to expand storage capacity. Nearly 20% hope to add a data mart or outsource the whole shebang. Expect to see requests for proposals.
But there’s bad news, too: Only a third of our readers calculate lifetime value, and 40% have no idea if their personalization is working.
FIRST, THE OBVIOUS. Database marketers use three metrics to determine return on investment: The number of customers generated, and the revenue and profit they bring with them. Some also use brand awareness and share of wallet.
But that doesn’t mean they have a firm grip on ROI. Only a third calculate lifetime value, and 40% have no idea if their personalization is working.
Those are among the findings of Direct’s 2006 database practices survey.
On the positive side, our research shows that firms are investing in their databases and putting them to good use.
For example, nearly two-thirds use databases to personalize products, services or marketing communications. It seems to be a wise choice.
The resulting lift covers the expense in individual campaigns for 50% of those who personalize. And it pays for itself over the lifetime of a customer for 40%. That’s why firms are spending more on it.
Eighty-six percent said their budgets would either increase or stay the same this year, while only 1% indicated they’d be scaled back.
Companies that market to business (or to both consumers and businesses) are most likely to personalize. But consumer firms are better at amortizing expenses during their relationship with customers. Nearly half said they’ve done so, compared with 30% for B-to-B firms.
But it takes people to get all this done. That’s why 31% of all database departments have added staff, up from 25% last year, with the biggest gains among consumer firms.
Workers aren’t the only investment. Nearly 40% of those surveyed expect to spend more on developing or maintaining their systems in 2007, and better than 50% believe they’ll be bumping up their general direct marketing budgets.
On average, DMers will spend an average of nearly $250,000 for database upgrades. Will these investments pan out? Yes, according to more than four out of five readers.
Of those big spenders, 70% plan to install or enhance data mining capabilities, while 40% want to expand storage capacity. Nearly 20% hope to add a data mart or outsource the whole shebang entirely. Only 15% anticipate bringing their system in house.
Once again, the B-to-B and mixed-focus companies were the most optimistic about earning back their investments: Ninety percent believe they will, compared with just over 70% of the consumer-marketing firms.
How long will it take? Some 43% feel the databases will pay for themselves within six months to a year, while another 37% think it will take between one and two years. Only 7% foresee it as requiring more than two years, and 13% anticipate earning back their investment about six months after the upgrade.
There’s a reason marketers are scrambling to invest. Nearly two-thirds expect direct marketing revenue to rise during the remainder of 2006. And that includes all types of firms.
The survey also found that:
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More than 20% maintain databases through outside service bureaus.
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Almost half said DM revenue rose in the last quarter of 2005, and over a third boosted database investments during that time.
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Marketers will spend 12% of their DM budgets on developing or maintaining databases this year.
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Among companies that personalize, more than 70% vary personalization (or service levels) based on customer value.
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Roughly half the companies that personalize goods or services anticipate budgeting more for it this year, while virtually none of those that do personalization plan to allocate less.
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When asked to name the most valuable element in their databases, most said it was prospect names.
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For existing customers, marketers want to know RFM (recency, frequency and monetary) data, followed by competitive products used and household demographics.
Methodology
This survey was conducted for Direct by Prism Business Media Marketing Research, an in-house firm. It was e-mailed to 5,393 Direct subscribers.Participants were chosenon an nth-name basis (a representative sample of all subscribers).
An initial copy of the survey, offering a chance to win one of four $50 Amazon.com gift certificates, was sent out April 11. Two follow-up e-mails, along with the sweepstakes offer, were sent to non-respondents.
Results are based on surveys returned by 216 qualified participants.
Respondents were sales, marketing or telemarketing executives (44%); corporate or general managers (29%); advertising or promotion managers (8%); and circulation, list or media managers (9%). The remaining 10% were fulfillment, operations or production managers, development directors or direct marketing managers.
The average annual revenue specified was $119 million. Participants reported current-year revenue as follows: under $1 million (24%); $1 million to $2.5 million (5%); $2.5 million to $5 million (12%); $5 million to $10 million (11%); $10 million to $25 million (18%); $25 million to $100 million (11%); $100 million to $500 million (12%); $500 million to $1 billion (2%); and more than $1 billion (8%). Numbers may not total 100% due to rounding.
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