The Marketing Database: To Build or Not to Build?

The Marketing Database: To Build or Not to Build?
By Perry D. Drake

For magazine publishers, determining ROI on a database build is no simple issue. The following article, written by Perry D. Drake of Drake Direct, appeared in the November 2002 issue of Circulation Management Magazine. Here, Perry shares insights from a publishing industry study about current practices, benefits and potential pitfalls.

For catalogers and other direct marketers of relatively high-priced products and services, the pay-offs to be yielded from a marketing database are often a no-brainer.

But for magazine publishers, the decision to make the significant investment necessary to build a marketing database is less clear-cut. In a business in which direct-to-publisher direct marketing subscription sources often lose money, at least in the short term, and most companies’ bottom lines are heavily or moderately reliant on advertising, numerous factors must be weighed to determine the ROI of a database build.

Given the nature of the business, it’s not surprising that many publishers continue to operate their businesses from a fulfillment file. And this is fine-for some. However, as advertising uncertainties and mounting circulation costs put growing pressure on publishers to make existing revenue streams more profitable and develop new revenue streams, some are revisiting the marketing database concept, or seriously considering it for the first time.

Clearly, a company’s ultimate decision on the database question can only be made through a thorough assessment of its own business, within the context of a disciplined cost/benefit analysis. Publishers must first determine their true needs and how the database would be used strategically. Then they must weigh the costs associated with building a database capable of delivering the desired capabilities against the benefits to be derived-and against the cost to perform the same functions using a fulfillment file alone.

What’s involved? Once needs and goals are outlined, the process begins with an assessment of customer lifetime value and segmentation schemes, using a sampling of the current customer base plus any purged expires. These analyses shed light on exactly what strategies would be enabled by a database. Other questions that need to be tackled include: How much data is really needed at the start? Which enhancement data elements are necessary, if any? How often does the database need to be updated to support the business? Should it be housed and maintained by an outside vendor? If so, what will it cost each time the vendor is asked to go against the file to pull names or counts? What software, if any, would be required to go against the database yourself?

The importance of this analysis and planning process cannot be stressed enough. (For resources providing more detailed descriptions of the analysis process, see author’s bio.) In addition, any publisher embarking on a build must be prepared to have the right training and team in place, including marketers and support staff capable of analyzing, understanding and fully exploiting the data. Management must also ensure that the right environment is in place-meaning a structure and clearly articulated policies that promote full, cooperative use of the database company wide and discourage inter-departmental conflicts that can undermine the database’s value.

Remember: Building a database is not an end in itself. It’s what you do with the data that counts. While this might seem obvious, too many publishers have invested in a build, only to maintain the status quo in regard to marketing strategies and information usage. Under those circumstances, a database “failure” — that is, failure to achieve sufficient financial benefits to offset the build costs — is guaranteed.

For those beginning to wrestle with the marketing database question, the results of a recent study of current database practices in the magazine publishing industry may provide some useful, general insights. The study, conducted by the president of our consultancy, Rhonda Drake, included interviews with 10 consumer publishers and publisher responses to a survey conducted among a variety of direct marketers. Here’s a summary of the findings:

Some publishers can achieve additional marketing leverage without building a database. A marketing database can certainly help any publisher build stronger relationships with customers through traditional and nontraditional contact methods. Again, however, the big question is whether the cost of the build will be offset by the benefits gained.

While the answer to that question depends on many factors, smaller publishers and single-title publishers (particularly those with relatively low subscription pricepoints) are generally not good database candidates-unless they have serious plans for expanding via new strategic alliances or new, synergistic product lines.

However, although publishers without multiple, synergistic titles or products are unlikely to realize sufficient ROI on a database, they may be able to make more productive, profitable use of their subscription files.

The biggest drawback of working from the fulfillment file is that it contains no customer history (or, from the opposite view, the main advantage of a database is that it does contain customer history). Most publishers who operate solely from a fulfillment file keep expires for just 12 to 18 months, and then scratch the tapes. Yet, without that customer history, there is no way to determine who was promoted in the past, how many times they were promoted and for how long they subscribed prior to going to expire-exactly the type of information that’s most valuable in developing and honing marketing strategies. Furthermore, operating from a fulfillment file alone makes it nearly impossible to conduct in-depth analyses of past promotional campaigns.

The good news is that this can be easily remedied by keeping the tapes of all mailed names and expires for at least three to four years. This Enables a marketer to easily determine, for example, what differentiates responders from non-responders to renewal price tests conducted three years ago, as well as how each pricing test panel differed with respect to lifetime value or contribution over the three-year period.

To properly compare the lifetime value of various groups, all of the names, including inactives, must be evaluated from their starting point. If inactives are purged too quickly-say, at 18 months-comparative results analyses will be misleading.

Publishers who are not currently considering a marketing database, but believe that they may build one in the future, have an additional reason to start saving fulfillment tapes. With this data at hand, a new database can be immediately populated with customer history. Otherwise, it will take two to three years to capture enough history and begin reaping the full benefits once the database is built.

Many publishers could benefit from the right marketing database. On the other hand, our study also found that there are many publishers With multiple, synergistic titles and products that could indeed realize more than enough benefits to justify the costs of a database. Those benefits include the ability to make more effective promotional decisions for each title and product, increased cross-selling opportunities, enhanced reactivation efforts, increased list rental revenue and added value to advertiser initiatives.

However, even when a company is a good candidate, the database’s ultimate success depends heavily on two factors:

  • The database must be appropriately sized and of appropriate scope. Scope issues include what names will populate the database, other information to be stored , the updating rules, and software requirements. In addition to investing time and effort in the analysis and planning process, a publisher must be willing to get the technical and marketing advice required to design a system that is sufficient for its needs, but not an exercise in overkill. A publisher may never be able to recoup the costs associated with an overly complex and ambitious system with excess capacities and capabilities.

  • The database must be used to its fullest potential. Again, in the absence of the skillsets and internal leadership/structure needed to exploit the database, it can easily turn out to be little more than a money pit. Our study found that, in virtually all cases in which a publisher was a good candidate for a database, but had failed to realize the benefits that justified its expense, one or both of these two factors was missing.

Cross-selling is the dominant motivator for a database build. Our industry study confirmed that company size doesn’t necessarily Correlate with the likelihood of a marketing database environment. In other words, some fairly large publishers have not yet developed a specific database strategy.

We also confirmed that the dominant impetus for the development of a database is cross-selling. If such opportunities are limited because a publisher’s titles and other offerings lack synergy, the basic renewal and reactivation of current subscribers can be accomplished fairly efficiently with data available from a fulfillment house. However, it is also clear that, for some, the costs of merging and enhancing title files could be cost-justified by the additional list revenue generated.

Publishers that have developed a significant Internet presence and web strategy that is being employed to strengthen a publication’s brand name or to conduct e-commerce are also more likely to have developed sophisticated database strategies. (Interestingly, some publishers with a Web strategy have not yet established an e-commerce strategy.)

Individual publishers are yielding a variety of benefits from databases. For magazine publishers as a group, the core benefit of a marketing database is its ability to overcome data-storage limitations and efficiently capture subscriber data beyond demographics, and capture business and home addresses, customer survey data and online data all in one place. Without a database, it is difficult to use information from various sources to make timely and cost-effective marketing decisions.

However, our study found that publisher database strategies differ based on the nature of their subscriber bases, editorial content and available online marketing opportunities. A publisher’s marketing vision and budget also play key roles in determining how a database strategy is defined and pursued.

In addition to exploiting cross-selling opportunities (without over-promoting one’s most valuable customers), common benefits or strategies among publishers that have a marketing database or are currently developing one include:

  • Advertising initiatives, such as collecting behavior and preference information on various readership segments, and/or creating demographic editions based on age and income splits.
  • Increasing list marketing efficiency.
  • Integration of online and offline data to enable identifying the most
  • loyal customers for cross-selling and renewal purposes.
  • Increasing the efficiency of retention and reactivation efforts.

Not surprisingly, publishers without a marketing database were found to be using subscription files only for purposes of fulfillment, billing, Renewals and reactivation of recent expires-and most, as noted, are holding on to inactives for 18 months or less. But again, it was also clear that some of these companies could definitely benefit from a database.

Most databases are outsourced.As would be expected, the specific technologies employed by individual publishers are largely driven by their needs for access to their data. Most of the consumer publishers studied that are still operating from a subscription file alone outsource their fulfillment, and must therefore rely on the vendor to generate special reports and counts or pulls (usually with some costs associated for programming and run charges). Conversely, publishers that require direct access to their data were found to employ more sophisticated technology.
Regardless of size, most publishers studied have chosen to outsource the housing and maintenance of their databases. Assuming that the vendor is carefully chosen, this makes good sense for many. However, larger publishers with very complex businesses that choose to outsource are wise to take steps to ensure that their data’s integrity will be consistently and carefully maintained. Such publishers need to develop a carefully crafted contract that includes penalties for the vendor in the advent of inaccurate customer updates, failure to adhere to the updating schedule, and other potential glitches.

Your customer names and their history are your company’s most valuable assets. To run your business most effectively, you must have accurately maintained customer data. The future success of your business may ride on how well you think through the entire database marketing issue, including the maintenance aspect.