Setting Realistic Expectations for Your Database
MUCH CONTINUES TO BE WRITTEN and said about measuring return on investment (ROI) on a marketing database or other customer information system. How big will the payback be, and how soon will it be delivered?
Often the size of a database investment – which could be hundreds of thousands if not millions of dollars, and a multiyear commitment of people and resources – forces the issue. Management asks the difficult question, “What is this going to do for our bottom line?”
This question prompts marketers to scramble for numbers. They look for an ROI financial model that management will approve and that they themselves can live up to.
Typically, marketers will pull together some assumptions about increased response rates, improved retention, greater lifetime value, reduced attrition and other great things that they “know” a marketing database can accomplish. These assumptions often are substantiated by snippets from trade magazines and conference case studies detailing other organizations’ successes.
Unfortunately, this type of ROI projection usually ignores the much larger question: In the practical, everyday working world, what are you really going to do with the system?
Too many ROI projections are based on rosy expectations that the database automatically will improve marketing programs. But do you really have the ability, willingness, resources and budget to put together these new and improved marketing programs and then test them over time? If not, the ROI proposition crumbles.
In my experience, the return on a marketing database investment depends entirely on an organization’s willingness and ability to capitalize on the tool and the opportunities it presents. A marketing database is an enabler. Any decision to invest in developing it requires a similar investment in the database marketing capabilities of the organization. This means adopting new processes, accepting new responsibilities and managing new priorities.
If you or your management haven’t taken up database marketing, don’t buy a marketing database. The simple fact is, a system cannot provide value if it’s not used…and used properly.
I equate the purchase of a marketing database to buying a new computer – both have the potential to drastically revolutionize the way you work. Yet, for some, a computer is nothing more than an expensive typewriter. Is your database nothing more than an expensive list?
In short, a solid understanding and use of database marketing is the key to database ROI. Far too many systems and tools have been developed, configured and introduced but then have fallen into misuse because business continued as usual. Some systems also have actually spurred significant losses because databases can enable you to be more effective at making mistakes.
Certainly, databases have the potential to create significant strategic and tactical opportunities. Improving customer retention is one of the biggest opportunities in database marketing, as any incremental increase in customer retention can have an exponential effect on customer value. Up-sell and cross-sell opportunities are more immediate ways to enhance customer value.
How Much Will You Save? You can assess the cost savings achieved by a database system investment. You can save significantly by optimizing processing routines to avoid ongoing, redundant tasks, or by eliminating wasted promotions to unresponsive contacts. For active marketers, this could justify a system’s cost.
Whether you’re measuring incremental revenue achieved through better marketing decisions, or cost savings realized from more efficient operations, your measurements depend on your marketing actions, not your systems.
My advice regarding the development of a marketing database system is to first assess your organization’s readiness – its willingness to change the way it runs marketing programs; its ability to adopt new technology and new ways of thinking; its expertise and experience in database marketing; and its probability of capitalizing on new opportunities. These factors are much more telling than the dynamics of your market, your product mix, your financial figures, your ability to collect and consolidate data, or the technology you have.
Organizational readiness and your capacity to develop data-driven programs are the keys to enjoying a positive return on your marketing database investment.
