Magazine article Financial Management (UK)

Field Work: A Firm's Database Intelligence and Capabilities Can Serve as an Important Barometer of Its Growth Potential. Andy Wood Explains the Value of Customer and Prospect Databases as a Corporate Asset

Magazine article Financial Management (UK)

Field Work: A Firm's Database Intelligence and Capabilities Can Serve as an Important Barometer of Its Growth Potential. Andy Wood Explains the Value of Customer and Prospect Databases as a Corporate Asset

Article excerpt

Stung by dramatic falls in capital values, investors of all types are finding it increasingly hard to decide where to put their money. So how can companies present themselves more convincingly to them? The answer lies in the marketing department. The value of customer and prospect databases has never been higher, since they represent probably the most important asset in a firm's development.

The value of customer and prospect data lies on two levels. On the first, it's essential for senior managers in the general running of a business. On the second, it enables marketers to turn customer relationship management (CRM) methods and technology into real results, allowing companies to calculate the cost of acquiring and retaining customers.

Pioneering firms are using figures from these databases to demonstrate tactical and longer-term sales opportunities. Using established methods, they can show how individual customers are grouped into segments and then outline the sales potential among them for current and future offerings. Detailed analysis is possible because the data has been gathered at an individual level through loyalty schemes, affinity activity and direct marketing campaigns, allowing them to pinpoint the relationship between a person's buying habits and their individual characteristics.

Over the past two years CRM strategies have come under scrutiny because many firms have failed to show a clear return on this investment. A research report by Gartner in 2001 estimated that poor decision-making will lead to the failure of three-quarters of all CRM projects up to the end of 2004. Since then, several studies have supported Gartner's forecast. But there's no reason why this many projects should fail, as long as a few basic building blocks are in place. First, rich data is required and rigorous methods of identifying individual customer acquisition costs must be used. A firm must also be able to measure ongoing customer profitability. Lastly, initiatives must work back from tangible commercial targets and be measured on how effectively these aims are achieved.

This may all seem simple, but research by my database marketing company, Total DM, shows that too few firms are working to these principles. Our study calculated the ability of different industries--banks, credit card issuers, insurers, retail multiples, telecoms firms and utilities--to obtain short-term revenues from customer and prospect databases. It also assessed their ability to develop longer-term revenues through customer retention, combined with upselling and cross-selling.

The retailers proved to be best at extracting commercial value from their databases. They commanded a high annual customer retention rate, coming third only to banks and telecoms firms. …

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