The Personal Touch: DIRECT’s annual survey notes customization trends among DMers

Welcome to 2000, where yesterday’s buzzwords are today’s corporate tactics. Or are they?

Take the idea of marketing strategies involving customization. According to DIRECT’s annual survey of readers’ DM practices, four out of five respondents maintain marketing databases, a figure that holds true whether a company primarily sells to consumers, is B-to-B oriented or offers its wares to both.

Among firms that administer their own databases, 71% said they use information in their files to provide customized offers, products and services to customers.

This figure was consistent among companies regardless of target market. Just under 68% of B-to-B marketers used some form of personalization, as did 65% of those aiming for consumers. The tendency to do so was even more pronounced among DMers that sell to both – nearly 77% used data to tailor their offerings.

We asked John Hunsicker, vice president for credit and database marketing at Fingerhut Cos. Inc. – DIRECT’s 1999 Market Leader in database and relationship marketing – to comment on some of the survey’s database-related results.

Hunsicker says Fingerhut’s initiatives in customization are being pursued more on the e-commerce side of its business than in the mail. “On the Internet, we are looking at technologies that will permit us to personalize to an even greater degree,” he says. “That’s where most of the industry is going.”

The Internet, says Hunsicker, has more potential for addressing patrons with information that demonstrates Fingerhut’s knowledge of them. In contrast, tailored mailings focus on acknowledging how long individuals have been customers or recognizing particular events, such as birthdays or anniversaries.

To expand its customization abilities in the non-digital world, Minnetonka, MN-based Fingerhut is exploring technology that will enable it to custom print pieces for consumers based on information the company has collected or preferences the customers have stated.

The impetus to personalize offers is constant, regardless of a company’s technological sophistication. Not surprisingly, 73% of the firms that have a Web site tailored what they put in front of consumers.

But many of those without Web sites provided customized offerings. In fact, two-thirds of those organizations indicated they realized the value of customization.

The broad nature of customization allowed most firms to claim they used this technique. But another significant catch phrase of late-1990s commerce – “enterprisewide” – has not gained as high a level of acceptance among DIRECT’s readers.

In order for a firm to have an enterprisewide database, the system must be able to coordinate information both from and among all departments within a company.

A surprising number of respondents – 57% – said their firms were sharing data throughout all departments, such as making sure customer service, billing and marketing have access and provide input to the same information.

But a look at which types of DMers have embraced this based on sectors they serve reveals that B-to-B marketers – 70% of which said they share information between departments – were far ahead of their consumer and mixed-focus brethren; 47% of each of the latter two were set up to take in and dispense data within their company via one system.

There are good reasons for this. B-to-B firms tend to have smaller databases and – due to the more stable ordering patterns of their customers – the ability to automate ordering, fulfillment and invoicing procedures to a higher degree. They are better situated to create a closed system that is entirely automated, even Web-enabled, than companies that deal with consumers.

“Businesspeople are more likely to share information on the Web,” says Hunsicker. “They are not as concerned about the veil of privacy.”

But even Fingerhut’s system is not truly enterprisewide. While its systems are connected, data tends to flow from the warehouse that supports its offline transactions to the one housing its online transactions, and not vice versa. “We have more data offline than we do online,” says Hunsicker. “But there will be a point in the not-too-distant future where learned online behavior will help us target offline. It will be bidirectional.”

The acceptance of enterprisewide systems by B-to-B firms is also seen when the respondents are broken down by their database size. Among those with smaller databases (fewer than 100,000 records), the incidence of an enterprisewide system was 63%. For those with larger databases, it fell to just over 50%.

There is likely some overlap between companies that have smaller databases and B-to-B firms. While respondents indicated a median file size of just under 72,000 records, the median volume of a database maintained by a B-to-B company was just under 25,000 records, compared with 50,000 for companies that sell both to consumers and businesses and more than 2.1 million for consumer marketers.

If more than half of those surveyed have had success getting their internal operations to communicate with each other, the results are not as good for integrating external communications. Barely 38% of all respondents said their databases were capable of recording input from all customer touch points. This figure varied only slightly among the categories – 41% each for B-to-B and consumer marketers, and 35% for mixed-focus firms.

Even among companies that host Web sites, with the plethora of information they are able to capture and the potential for instant turnaround, only 38% have databases that record data from all contact points, compared with the 33% without Web sites that do so.

A lack of integration is one factor representing potential for investment or upgrade of database facilities, and 45% of the respondents plan to do so, down from 51% in 1998’s survey. Of these, more than one in five plan to bring their databases in-house from outside vendors, 8% anticipate outsourcing them, and the rest have other upgrades in mind.

There’s plenty of investment capital up for grabs. Respondents indicated that investments and upgrades alone would reach a median of better than $34,000, with 21% foreseeing spending more than $250,000 on their systems.

Which is peanuts in light of what Fingerhut anticipates. Current plans call for an upgrade in the tens of millions of dollars, as the company makes its warehouse more efficient in the e-commerce environment. According to Hunsicker, the existing database was developed for use in the catalog arena.

When budgets come into the picture, power struggles do as well, and the question of which department manages the database can be a sticking point within a firm’s hierarchy.

The two most likely candidates are the marketing and information technology departments.

Overall, 60% of the respondents said their marketing department took responsibility for coordinating the database, while only 8% claimed it was the exclusive provenance of IT. Another 24% indicated that responsibility was split between the two, while 8% said that neither maintained it.

The smaller databases within the B-to-B sector were more likely to be managed by marketing (79%), while consumer and mixed-focus firms tended to divide the duties. But none of the consumer firms said that IT held sole responsibility for their files.

While the marketing department at Fingerhut covers the cost of maintaining its data warehouse, responsibility is split between the two departments, says Hunsicker. “[Marketing] sticks to defining the requirements [needed from the data] and allows tech partners to define how they are going to build it,” he says. “We have a good partnership.”

Among those firms that have a Web site, one-third said IT had a hand in maintaining the database, either jointly or separately. Only 25% of those firms that do not have Web sites allowed IT to collaborate on running their databases, and none allowed these departments to administer them on their own.

The size of a marketer’s database may indicate the role DM plays in its strategy. Companies with smaller databases (those under 100,000 records, which include a majority of the B-to-B firms) generated less revenue through direct marketing. On average, respondents with smaller databases derived 41% of their revenue from DM, compared with 52% among firms with larger files.

The larger the database, the more likely plans for 2000 involve bringing it under the firm’s roof. Among those planning investments, 21% said they intend to transfer their database in-house. The firms with large files were three times as likely to do so as firms with small ones.

Another 8% of those making upgrades indicated they plan to outsource their files, a figure split equally among firms with large and small databases.

Organizations with larger databases also plan to spend significantly more on upgrading them in 2000. While those respondents with smaller files claimed they’ve earmarked just over $8,000 for upgrades, this figure pales when compared with anticipated expenditures by companies that have larger databases. They expect to spend over $231,000.

Companies with smaller databases are more heavily invested in acquisition strategies than those with larger files; 60% of the DM budgets among firms with smaller files were put toward acquisition, compared with half for those with larger files.

By and large, however, they spend their budget on similar direct methods. In 2000, firms with both large and small files plan similar increases in their reliance on DM options such as CD-ROM marketing, direct response TV, e-mail and faxing.

Fingerhut’s database-driven marketing efforts include plans to expand most forms of e-commerce, both as a prospecting mechanism and a retention tool. Mailings (catalog and non-catalog) are flat or declining due to cost concerns and an increasing consumer preference for e-commerce.

“We see a growing number of customers who prefer to shop on the Internet,” says Hunsicker.

Fingerhut is exploring such traditional media as freestanding inserts and direct response radio. According to Hunsicker, these are more effective than blanket media in reaching Hispanics and Asians, two consumer groups underrepresented in the Fingerhut database.

Firms with smaller files, however, anticipate using direct mail other than catalogs more heavily (61%, compared with 49% for those with larger files), as well as inbound telemarketing (44% vs. 29%) and self-mailers (31% vs. 3%).