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Intelligent Systems

Volume VII, Number 3, August, 2000

A quarterly newsletter for clients and friends of Chenault Systems

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Book Review: Strategic Database Marketing - 
The Masterplan for Starting and Managing a Profitable, 
Customer-Based Marketing Program

By Arthur M. Hughes (McGraw-Hill Publishers, $39.95)

By Tom Chenault

In today's competitive business world, the most profitable customers are the ones you already have. The more you know about these customers, regarding their habits and needs, the better chance you have in growing your business. Strategic Database Marketing by Arthur Hughes covers this subject in detail. By the way, we found this book doing an Internet search on "customer relations marketing" (CRM). Recently, we have had several clients and prospective clients request the development of a customer information database to establish stronger customer loyalty. This has become an important marketing tool for many organizations over the past several years, and with the coming of the Internet has become easier to do.

First, we liked how Strategic Database Marketing started. Most business books require you to slug your way through the first few chapters before you can appreciate it. With this book, the introduction and the first chapter really get you interested. In the introduction, the story of an entrepreneur is portrayed. His company does land surveys for banks and title companies. He builds a database detailing customer profiles and discovers, over time, that his most profitable customers came from referrals while his unprofitable customers came from the yellow pages. He uses a Caller ID interface so the calling customer phone number will trigger the information on the computer screen as soon as the phone rings. He develops a Web site and uses the Internet, combined with laptop computers, to help his people get land site records from the field without using car mileage. He builds an Intranet for his most loyal customers so they can access information without having to call him.

From here the author describes the two types of customers as "relationship buyers" and "transaction buyers." The relationship buyers want to build a partnership and help make both parties profitable, while the transaction buyers will only price shop around causing long-term problems for both parties. This provides the setting and theme for the rest of the book: marketing focused on customer retention as opposed to customer acquisition. He contends that most companies spend most of their marketing dollars trying to find new customers instead of finding out which existing customers to keep, and then growing those accounts.

The first chapter provides a good overview on the book's main points:

In the second chapter, Hughes deals with some obvious and interesting historical concepts. For example, the United States is leading the world in standard of living and technology because of economic freedom and relatively low taxes and regulations (compared to other countries, which must really be awful).

Finally, the book gets into the heart of the matter, which is using databases to know everything you can about your best existing customers and increasing revenues and profits. A multitude of concepts are discussed, such as "lifetime value (LTV)," which gives a good measurement of customer profitability and help rank your customers. Another measure is something called "RFM", which combines recentcy (how new is the customer), frequency of orders and total monetary revenue to decide which existing customers will respond best to promotion. In other words, by coding and sorting your customer database in a certain (and proven) way, you can limit your marketing costs to only those who will respond. The correlation between good employee retention and good customer retention is also studied since customers really deal with individuals not companies.

Hughes discusses how all this works, along with demographics profiling and product affinity (people who buy tennis racquets also take tennis vacations) in many industries, such as: retail, hotels, airlines, banks, insurance, high tech manufacturing, restaurants and cell phones. An entire chapter is devoted to financial services companies since they own enormous amounts of customer information, but, in most cases, use little of it.

One chapter discusses why databases fail and another discusses database types that succeed. Outsourcing is also covered, such as choosing the right consultant to build your customer profile database.

We highly recommend Strategic Database Marketing. Not only does it cover some very good marketing concepts and customer retention, it also covers the latest ideas regarding database and Internet technology.

North Dallas Chamber Marketing Seminar, September 7th

On Thursday, September 7th, the North Dallas Chamber of Commerce will present: Maximizing your Customer Base - Sales and Marketing Techniques to Grow Your Business

Topics include: Where do you find new customers? How do you keep the customers you have? How do you boost your customer base long term?

This informational seminar will address three different approaches to gaining and keeping customers and provide ideas on growing your business.


Robert McCollum, New Client Development Director, Prospera Financial Services


Vickie Henry, CEO, Feedback Plus, Inc.
Ed Walker, Vice President, Herb Durham Company
Andrew M. Stern, Chairman and CEO, Sunwest Communications, Inc.

North Dallas Chamber seminars are presented from 7:30 - 9:00 a.m., and located at 10707 Preston Road. The cost is $15 for members and $25 for non-members, and includes a continental breakfast. Please RSVP to secure a reservation by using:

Quotes Worth Noting

"Accountants have developed sophisticated techniques for appraising capital assets and their depreciation; they have learned how to monitor the constantly changing value of work-in-progress; but they have not yet devised a way to track the value of a company's customer inventory. They make no distinction between sales revenue from brand-new customers and sales revenue from long-term, loyal customers, because they do not know or care that it costs much more to serve a new customer than an old one. Worse, in most businesses, accountants treat investment in customer acquisition as one more current expense, instead of assigning it to specific customer accounts and amortizing it over the life of the customer relationship." - Frederick Reichheld, The Loyalty Effect

"It is sobering to reflect on the extent to which the structure of our business processes has been directed by the limitations of the file folder." - Michael Hammer and James Champy, Reengineering Your Business

"The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics." -- Thomas Sowell


 Contact Chenault Systems for your consulting needs!


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