Tuesday, February 02, 2010

Can Database Marketers Learn Digital Tricks?

Summary: Database marketing and digital marketing are more different than it seems. It's hard for experts in one to adjust to the other.

Yesterday’s post touched briefly on what I see as a fundamental transition between database marketing and digital marketing, and in particular on the changes that marketers and their supporting vendors must make to navigate the change successfully. This is an important topic, so I thought I’d return for a closer look.

It’s self-evident that digital marketing (mostly on the Internet, but also mobile, in-game, and eventually interactive TV) is a major change from both traditional mass media and more recent database marketing (mail, email, telemarketing, CRM). What’s less obvious is that the skills and attitudes that have served database marketers well for the past twenty or more years – an entire career for many – don’t transfer to the digital world. It’s true that database and digital marketing are both technology-enabled and thus seem as if they should draw on similar talents. But the similarities are superficial while the differences are profound.

Let’s cut to the core of the matter: the first rule of database marketing is that whoever has the biggest database, wins. Database marketers strive to gather ever-more information about their customers and (to a lesser extent, because less data is available) about their prospects. Their Holy Grail is the ever-receding “360 degree view of the customer,” a phrase I’ve always disliked because (a) it treats the customer as an object and (b) no one can possibly know everything about their customers. Today, at least to my mind, it also conjures up a full-body scan X-ray, an image I hope enough people find so offensive that it will finally put the phrase to rest.

Sorry for the rant. My point is that database marketers’ ideal is a perfectly detailed customer database, which would allow them to target precisely the “right offer to the right customer at the right time.” This attitude leads to highly structured, finely segmented campaigns and carefully-plotted, rules-driven interaction flows which make the best possible use of whatever data is actually available.

Digital marketers have no such illusions about the completeness of the data they could ever hope to assemble. I’m not saying many of them wouldn’t like to identify each person they interact with, just that this is obviously impossible in most situations. Thus, digital marketers start from a premise that they’ll be interacting with people cloaked by varying degrees of anonymity, and look for ways to make the best use of the limited information available. In one case this might a search term they used to reach a Web site; in another it might be a history of movies they and others have rented; in yet another it might be their current physical location. Most innovations in digital marketing involve improving the value extracted from such limited data, rather than attempting to link the data to an identity that can then be enhanced with large volumes of personal information from other sources.

(Caveat: yes, there are some major efforts aimed precisely at providing digital marketers with individual identities. But these run up against both the fundamental difficulty of identifying people in most digital media. Even more important, their value is limited because immediate past data about behavior and context is usually more powerful at predicting immediate future behavior than static personal information from external sources.)

A corollary to the limited and contextual nature of most digital customer data is that marketing programs don’t have enough information to make reliable predictions about the most appropriate treatments. Thus, multi-step marketing campaigns or highly structured interaction dialogs are less useful than simply giving people a variety of choices and letting them guide the process for themselves. Again, this is a matter of degree: deciding which choices to present itself requires predictions about which items the customers will prefer. But presenting multiple choices is quite different from trying to guess in advance which one is best.

In other words, we’re talking about a loss of control over the marketing process. This is still more obvious at the start of the marketing cycle, when companies are first attracting customers into a relationship. Database marketers spend lots of effort acquiring and enhancing prospect lists so they can decide whom to approach and which offers to send them. By contrast, most digital marketing contacts are initiated by the prospects themselves in response to an advertisement or social media message. Certainly digital marketers can select their advertising audiences, but this resembles traditional media buying more than an outbound direct marketing campaign. Even (or, perhaps, especially) with social media interactions, the marketer has very little control over what is communicated to whom.

Indeed, even though database marketers do plenty of acquisition, I think it’s fair to say that they find it relatively frustrating because the available data is generally so limited. Most would probably prefer to work on customer management – cross sell, upsell and retention – where richer data is available. By contrast, digital marketers have happily embraced the notion of “inbound marketing”, which is precisely the art of attracting new people to their products. To speculate still further, the reason that business marketers are adopting marketing automation much more enthusiastically than they ever adopted traditional database marketing may be that business marketing automation is largely being used in acquisition-friendly digital media, and business marketers are more acquisition-oriented (i.e., focused on lead generation) than their consumer marketing brethren.

Control is also a major differentiator when it comes to marketing measurement. Perhaps the proudest claim of database marketers is that all their efforts are highly and precisely measurable. Reality is a bit more messy, but it’s true that database marketing does support proper champion/challenger testing for companies willing to make the investment. Digital marketing also supports such testing. But many digital efforts involve display advertising where at least some of the value comes from exposures that do not prompt immediate, measurable activity. This is another area where digital marketing more closely resembles traditional mass media advertising than anything else. In fact, digital marketers increasingly base their measurements on consumer panels and surveys, almost precisely duplicating the conventional mass media approach. Again, the fundamental point is a difference in attitude: database marketers treat precise measurement as their ideal, even though they realize it isn’t fully attainable. Digital marketing doesn’t permit that illusion, so its practitioners can more easily accept less exact approaches.

By now I’ve probably annoyed many of my friends in both the database and digital marketing industries. Let me make clear that I’m not arguing that database marketing is obsolete or somehow inferior to digital marketing. They do different things and will coexist, just as mass media survived when database marketing appeared. In fact, good marketers will learn to integrate them effectively, letting each do what it does best. Actually, I’d argue that rule- and data-driven Website personalization has more in common with classic database marketing than with most digital marketing methods. In that case, integration between the two types of marketing happens within the Web site itself.

Nor am I arguing that database and digital marketing have nothing in common. Both are, obviously, dependent on technology and both are measurable in their own ways. Both work with customer databases – in fact, as digital marketers get better at capturing and integrating customer data, they will find themselves increasingly reliant on database marketing techniques. And, of course, both ultimately perform the basic marketing tasks of understanding their customers and using that knowledge effectively.

Rather, I’m trying to show that different skills and assumptions are needed for success in the two areas, and to suggest that this makes it difficult for people and organizations to transition from one to the other. This, in my opinion, is why the direct marketing agencies, marketing service providers and marketing software vendors who dominate the database marketing industry have not transferred their leadership to the digital marketing channels. The only new medium they easily adopted was email, but that was essentially database marketing to begin with.

This doesn’t mean that database marketing vendors are inevitably doomed or trapped in a shrinking specialty. But it does mean that those firms must recognize the fundamental differences between their old industry and the new one. They cannot make the easy but false assumption that digital marketing is a natural extension of database marketing techniques. Only the marketers and vendors who aggressively embrace digital marketing in its own terms will be able to lead the new industry.

5 comments:

marthabush said...

Wow, I couldn't disagree more. You have a very limited view of database marketing. After 30 years in the business I see it as all about capturing data about the prospect or customer and figuring out how to engage next based on whatever we know -- in order to acquire, retain, grow the customer. Maybe you're just thinking of big DB Mktg vendors who really make their money from data, but the practitioiners in the market are trying to use whatever data is available to make the most relevant contact to move the customer up the lifecycle. Don't see how that's very different from the Digital marketer's goal

David Raab said...

Appreciate your comment Martha. I too have spent 30 years as a database marketer.

What I was trying to convey is that it's a matter of perspective. Your statement that database marketers "see it as all about capturing data about the prospect or customer and figuring out how to engage next based on whatever we know" exactly illustrates my point. I don't think digital marketers define their job as capturing data; rather, they are focused on reacting to the current situation, whether or not they're able to capture and retain the data for future use.

AND, digital marketers do a lot of inbound marketing (a.k.a. advertising) where they are working without any customer data all.

marthabush said...

So I guess it's just back to the future. 30 years ago all we did as direct marketers was "inbound marketing" running 120 second spots and waiting for the phone calls to come in, small space print ads, etc. Tracked the collected data and results on hand written spreadsheets and calculated ROI. Sure seems like Digital marketers do care about the data, otherwise what's all this talk about Behavioral Targeting?

David Raab said...

Well, as I recall my youth, most direct marketing back then was about direct mail and building lists. But, I agree that there's definitely a "back to future" element here. Web media buying looks a lot like TV media buying. It even includes -- to the horror of any true direct/database marketer -- elements of "brand advertising" that cannot be tracked to a specific response.

I think the fundamental distinction is that database marketing works in "addressable media" where messages can be tailored to individuals who are known in advance. Most digital marketing, including behavioral targeting, is aimed at people whose identities are not known, and is instead based on a limited slice of their behavior. Good digital marketers will certainly try to build richer profiles over time, but I don't think they start from the perspective that gathering more data is the key to success.

The impetus for my original post was the observation that the leading database marketing vendors have not been the leading digital marketing vendors. (Of course, the database marketing vendors may disagree with that premise.) I was trying to understand why.

Kenyon said...

I agree with both of you. David is correct is saying that digital marketers are from a different world. It's about creating dialogues versus managing data. Martha is right when she aspires to link online and offline data together even if it's very difficult to do. What a great discussion; I was just thinking about this over the weekend.