September 1996
Database Maintenance Planning: Justification Comes In Three Flavors
by Kenneth M. Culpepper
Direct Marketing Magazine, September 1996, pp.26-29
This article is part two of a series on database maintenance planning. Database maintenance planning is a disciplined process that integrates entire corporations and organizations for the purpose of efficient delivery of direct marketing mail pieces. It is an ongoing process that produces perpetual financial benefits of waste avoidance and customer recovery revenue.
The articles cite examples of database maintenance planning from a case study of an actual organization's research, implementation, organizational impact, financial summary and results. It is a retailer, direct marketer, cataloger, publisher, wholesaler and sponsor of conferences and events. It has three different transactional system databases along with several other stand-alone databases that combine for a total of approximately 3.3 million consumer customers.
Database Maintenance Planning
What if you illustrated how different steps in a Database Maintenance Plan (DMP) can save your business or organization hundreds of thousands or millions of dollars in waste avoidance over the period of a year? What if it can recover established customers who have already done business with you, but, your marketing communications pieces are not being delivered to them because of change of address or an address element deficiency? And what if it can continue to save waste avoidance dollars and recover established customers on an ongoing basis? Are you starting to get an idea of where some database marketing funding dollars may come from?
First of all, you have to have a database that you are mailing to on a regular basis. If your database has not been sent outside your organization within two years for cleansing, there is probably significant funding for your organization to justify the start-up of database marketing with the initial cleansing savings.
Because data continuously degrade, additionally, there are ongoing savings that the DMP gives your organization. Consumer data degrade in usefulness approximately 20-30% annually, while business-to-business data are estimated to degrade at a more rapid rate of 50%. Therefore, a DMP is a perpetual process in any organization that uses a database.
There are three benefits from the DMP including waste avoidance, customer recovery revenue and data confidence.
Waste Avoidance
Waste avoidance is the most significant benefit for initiating and implementing a DMP in any organization. In most organizations, waste occurs for two reasons:
1) Spending postage or production dollars on marketing or mailing to customers
without the mail piece being delivered to the intended customer.
2) Loss of any discounts or delivery time because of failure to comply with United
States Postal Service (USPS) standards.
Waste avoidance translates into saving money and improving response rates. Saving money that has been allocated to marketing budgets means that there are remaining funds for additional marketing. Improving response rates means a marketing promotion is evaluated as more profitable.
Waste occurs for other reasons that are not identifiable, however, the DMP can only measure waste avoidance and recovered customers from identifiable sources of waste.
Customer Recovery Revenue
Recovering customers who are no longer being reached directly by mail is another significant benefit of the DMP. The DMP does more than just identify who will get the mail piece and who does not. It identifies names and addresses that are "non-deliverable", corrects those that can be corrected and places them back into the marketing database.
Being non-deliverable means that the USPS recognizes the address given for a specific customer (name) as not residing at the mailing address, or the customer's address has an incorrect element(s) for delivery of the mail piece. Whether a mail piece which the USPS has determined as "non-deliverable" because of an incorrect address element actually gets delivered, varies depending on where the mail piece is delivered.
For example, in a few parts of the United States, "Down past the red barn, over the creek and across from Mr. Smith's house," is a deliverable address; deliverable meaning that it will get there. We see it all the time at universities and other institutions. It has been delivered that way since forever and some will continued to be delivered; however, most addresses that the USPS recognizes as non-deliverable are not reaching the customer.
Non-deliverable customers are identified as such because of four reasons: 1) customer has changed their address, 2) customer has changed their name, 3) customer address is recognized as non-deliverable by the USPS due to address element deficiency or 4) customer rural route address needs to be converted to city style address according to the USPS.
Many customers leave forwarding addresses when their address has changed, but most mail pieces are not reaching them because most organizations that mail significantly are receiving bulk discount rates. The USPS does not forward these mailings.
Correcting non-deliverable names and addresses and placing them back into the database will give back established customers to an organization. Marketing directly to these customers again will produce a calculative increase in customer revenue over a researched period of time for the organization. This is another financial benefit of the DMP.
Data Confidence
Data confidence is a benefit of the DMP that is not directly identifiable by financial measurement. However, this benefit is critical because it is a perceived element of efficiency, by the organization's customers.
For example, the case study's benefit of data confidence was a turnaround in the way it's customers, affiliates, constituents, and associations viewed the way it had been using it's allocated resources.
Previously, this organization had been viewed as wasteful about how it used allocated marketing resources. On several occasions, the president of the organization even received letters from customers expressing how wasteful it was to receive four catalogs, seven mail pieces, or even why no mail is being delivered. Even though a DMP cannot financially calculate how much this is worth to an organization, it is significant to the value of an organization's perception from its customers. Tom Peters calls this "perception of excellence."
Furthermore, the areas of the organization that do the marketing and mailing will have confidence that the data that currently resides in the related database is as correct as it can justifiably be.
Where To Start?
The best place for beginning the work to write a DMP is with the actual customer file(s) from the database. If the organization has only one database, this is a piece of cake. Unfortunately, in larger corporations and organizations the customer base usually consists of several databases. These databases contain overlapping customers because their names are usually entered through different transaction systems from different areas of the organization's businesses. This is an integration issue.
Integration is not an issue that can be easily agreed upon within larger organizations. They are usually divided into multi-business units with different marketing and business objectives. The problem is no one rarely coordinates and maintains the customer name and address information for the organization and usually not for any of the separate databases.
The organization in this case study relied on in-house software for taking care of duplicates, standardization and sortation, but nothing was enforcing any business unit to even use that. Furthermore, each business unit did not want to share their names with the others. There wasn't any integration of organizational marketing, mailing or database maintenance for its degrading databases, nor was it desired.
Pulling the Database Sample
Even if integration is not highly thought of in an organization, saving money and recovering established customers will be. This case study is a living testimony to that.
Upper management needs to be shown just how much money is being wasted and how many customers can be recovered. There must be a financial justification of database maintenance planning.
For the purpose of justifying the DMP, all databases must be made to appear as one database and still remain as separate databases. Therefore, making any estimate of the current deliverability of an organization's marketing database requires combined analyses of the entire customer base. The DMP will do this by giving deliverability estimates of database samples. This sample must be representative of the customer base, as well as each separate database.
First, pull a representative sample from the database or each significantly sized database within the organization. Use judgement to determine which databases are significant in size for the organization. An adequate sample of a database is 25%.
Second, make sure each database sample has been coded with an identifier of which database it came from. This is important to answer specific questions about the deliverability of each business unit's database.
The last process in pulling the sample is placing it on the disk or tape for the upcoming analyses. The vendors will explain the acceptable format and other specifics to analyze the data. Figure 1 shows the case study's example of its original database samples.(SEE FIGURE 1)
Analyses of the Sample
After the database sample has been pulled, the processes which determine the deliverability of the customer base and each separate database begins.
The customer base is sent to the vendor of choice for analyses to determine customer address deficiencies. Depending upon the size of the database, this analyses should take between two to four weeks.
Following data analyses of the databases, a report is issued that explains the deficiencies in the organization's databases. This report, along with organization-wide mailing research, is used to estimate the amount of waste avoidance and customer recovery revenue. It is key to financial projections which justify the DMP.
For example, the case study's sample analyses and mailing research indicated that, on average, 39% of the mailings resulted in wasted postage and mail piece production dollars. Out of this research, a DMP proposed to put the databases into an integrated cleanup process which would enable this organization to save an estimated $941,000 from waste avoidance of production and postage in the first full year of implementation. This turned out to be a conservative estimate. An additional estimated value of $170,000 in sales revenue would be gained in the first year from recovering established customers.
The sample analyses estimated the deficiency percentage for the customer base and separate databases, and the organization-wide mailing research estimated the volume of mailing, average cost (postage and production) of each mail piece, and the average spending and response rates for the customer base. Figure 2 (SEE FIGURE 2) illustrates how the case study used this research for financial justification of the DMP.
As a result of this research, the DMP projected these financial benefits from its implementation to upper management:
1) The annual production and mailing of 8.4M mail pieces could be reduced to 5.4
to 6.8M with no loss in projected revenue.
2) Reduction of a significant amount of waste in production/postage projected as
$941,200 in project year 1, and a cumulative gain after five years of
approximately $5 million.
3) Recovery of established customers and their resulting contribution projected at
$170,000 in project year 1.
4) Speed, turnaround time and annual quantity discount savings in working with 1-2
outside vendors.
5) Positive cash flow the first month of analysis -- five months after plan approval.
Further research into the organization also revealed alternatives to accepting the DMP, the likely organizational impact to its implementation, and a documented list of several key assumptions that covered practically all areas of the organization. These assumptions are important because the success of the DMP according to its implementation time schedule, budget allocation and financial forecasts are dependent upon them.
Finial Pieces to the Beginning
After the data analyses and organizational research are completed, the DMP is determined to be justifiable or non-justifiable. If it is justified by the research, the actual writing of the DMP begins to translate and propose the research into a business plan that seeks the approval from the CEO or the powers that be of the organization.
Each business and organization is different. There are different aspects of corporate culture to deal with in all of them. Because of the many different types of individuals that are throughout an organization, the DMP must be a document that can speak the language of any type of individual who needs to understand the purpose of it. Only through the database maintenance planning approach, can a multi-business organization integrate its database hygiene efforts.
The next article will illustrate the flow and explanations of the maintenance and customer recovery processes and the implementation steps and scheduling of a DMP.
Ken Culpepper is president of Integrated Marketing Solutions, Inc., a
knowledge-base marketing firm that
integrates tactical marketing strategy with management of multiple contacts
of businesses to their customers, prospects and channel customers. IMS incorporates
marketing business planning, long-term corporate ROI strategies, and marries
knowledge-based marketing with e-commerce strategy and systems. IMS has
offices in Atlanta, GA (770) 390-9199 and Nashville, TN (615) 782-0461.
(Web: migmar.com/ims)