BENCHMARK’99

Apr 01, 1999 10:30 PM  By

Reflecting the ever-growing importance of database marketing to the catalog industry, this year we’ve broken out a separate database marketing benchmark report. In the past, we’ve presented the Catalog Age Benchmark Report on Lists and Databases as one survey. Instead, this year a separate Benchmark Report on Lists will appear in our July issue. n Looking first at how much database marketing costs the catalog business, database marketing consultant David Raab, principal of Raab Associates, observes that the prices of database systems and software have fallen considerably over the past few years. “Newer vendors are pricing their database software and systems at about half of what older vendors listed their prices at,” he says. “And that’s forced older vendors to discount their prices.” And as the cost of database marketing technology has come down, it’s no surprise that catalogers have stepped up their use of-and spending on-database marketing.

Although larger catalog firms typically spend the most on database maintenance and development, catalog respondents with annual sales of ñ1 million-ñ9 million allocate a slightly higher percentage of their total budget to this area. These small players spend a mean of 3.0% of their budget on database maintenance and development, compared to the overall survey mean of 2.7%. Overall consumer respondents spend 2.8%, b-to-bers spend 2.5%, and hybrids (targeting both consumer and b-to-b) spend 1.9% of their budgets on maintenance and development.

As for spending on database marketing software, respondents spend a mean of ñ6,500 annually. The b-to-b mailers are the biggest spenders, with a mean of ñ9,800, compared with means of ñ5,900 and ñ5,400 for consumer and hybrid respondents, respectively. The largest group of consumer catalogers (69%) spends less than ñ2,500 a year on software, and just 14% spend more than ñ20,000. By contrast, only 39% of b-to-b mailers spend less than ñ2,500, and 28% spend more than ñ20,000. Brian McCloskey, direct marketing manager for the Hewlett-Packard Co. Education Americas b-to-b catalog division, confirms these findings, saying that his company spends more than ñ20,000 a year on software. “We rely on our database to target-market our offerings by segment,” he says. “To do that, we need a reliable and user-friendly database; the software assures us of that.”

Among all respondents, 53% of those with annual sales above ñ50 million spend more than ñ20,000 on database software annually. Conversely, of respondents with sales of ñ1 million-ñ9 million, 53% spend less than ñ2,500 on database software, as do 100% of those with sales of less than ñ1 million.

Of the 17.7% of consumer respondents that append or reverse-append their data with additional information from outside sources, all of those with sales of less thanñ1 million spend just ñ2,500 or less a year to append, while 43% with sales greater than ñ50 million spend more than ñ20 million a year.

Again, the b-to-b respondents spend more. The largest portion (50%) of b-to-bers that append or reverse-append their data spends ñ5,001-ñ10,000 a year; just 13% spend less than ñ2,500. McCloskey says H-P spends more than ñ20,000 a year to append or reverse-append its data. “We’ll typically go the extra mile to correct information before it goes out-even in the 11th hour. We want to avoid customer confusion and make sure that the content we have on customers is accurate.”

While 63% of respondents overall spend less than ñ2,500 annually on database consultants, 50% of all respondents with sales greater than ñ50 million spend more than ñ20,000 a year on them. Among respondents with sales exceeding ñ50 million, 67% of hybrids spend more than ñ20,000 on consultants. On the other hand, just 46% of consumer respondents of the same size and 33% of b-to-b respondents this size spend that much.

For Eurosport, a ñ37 million hybrid cataloger of sporting goods and uniforms that markets to school teams and sports clubs as well as to individuals, a database consultant helps the cataloger locate lists of teams, says director of marketing and merchandising analysis Jimmy McIntyre. “Our database consultant really serves as a go-between in getting us lists and sending them to the service bureau for merge/purge, National Change of Address, etc.”

It’s no surprise that most respondents maintain recency/frequency/monetary history in their databases. In fact, 95% overall keep data on dollar purchase history, and 94% track the recency and frequency of purchases. And 94% of total respondents maintain data on the products purchased.

In addition, 80% of survey respondents maintain the source of customer acquisition, including 85% of consumer, 58% of business-to-business, and 81% of hybrid respondents. But while 43% of consumer catalog respondents and 37% of hybrid respondents maintain promotional history data on customers-such as what kinds of mailings they’ve sent to customers-just 11% of b-to-b respondents track and hold on to such data. (This is presumably due to b-to-b customers’ tendencies to move from job to job.) Instead, a significant portion of b-to-b respondents (37%) gather information on customers’ standard industrial classification (SIC) codes.

Interest in customers’ Internet purchasing history is fairly prevalent among all three catalog segments. Overall, 35% of respondents maintain data on Internet purchases, including 39% of consumer respondents, 32% of b-to-bers, and 24% of the hybrid survey respondents.

Many catalogers still shy away from database modeling. Just 42% of all respondents-52% of consumer catalogers, 21% of b-to-bers, and 38% of hybrids-do any modeling. The largest group that uses modeling (41%) uses it for RFM. This includes 52% of consumer respondents-although just 16% of b-to-bers and 38% of hybrids do RFM modeling.

Relatively few respondents-only 33% overall-say they use customer loyalty programs. Of that 33%, 39% are consumer, 26% are b-to-b, and 30% are hybrid catalogers. Among those using loyalty programs, all of the b-to-b respondents, 33% of consumers, and 22% of hybrids offer buyers clubs.

Of those 33% of respondents with loyalty mechanisms, 37% have continuity programs, including 25% of consumers, 60% of b-to-bers, and 56% of hybrids. About 26% overall use proprietary credit cards to build loyalty, including 17% of consumers, 60% of b-to-bers, and 33% of hybrids.

Despite the importance of knowing what your customer is worth, only 51% of all the survey respondents say they conduct lifetime value (LTV) studies, including 51% of consumers and hybrids, and 58% of b-to-bers. The good news is that this is up 7 percentage points over last year, when the list and database survey showed that only 44% of all respondents-54% of consumers, 25% of b-to-bers, and 30% of hybrids-computed LTV.

In surmising why nearly half of the survey respondents still don’t track customer lifetime value, Drew Eginton, president/CEO of marketing analytical software provider MarketSwitch, says that many companies believe it’s just too difficult and requires too much manpower. “Marketing is probably the least automated of any corporate function left,” he says. “So when you’re talking about very complex issues, such as how a customer’s LTV is going to change if you change your product mix or promotions, many companies find it too difficult to manually deal with such severe customer optimization calculations.”