The downside of database marketing & CRM


The positive aspects of database marketing are partially offset by some negative aspects. Four problems can deter a firm from effectively using CRM. The first is that building and maintaining a customer database requires a large investment in computer hardware, database software, analytical programs, communication links, and skilled personnel. It is difficult to collect the right data, especially to capture all the occasions of company interaction with individual customers. Building a customers database would not be worthwhile in the following cases:

1. Where the product is a once in-a-lifetime purchase (e.g. a grand piano).

2. Where customers show little loyalty to a brand (i.e. there is lots of customers churn).

3. Where the unit sale is very small (e.g. a candy bar).

4. Where the cost of gathering information is too high.

The second problem is the difficulty of getting everyone in the company to be customer oriented and to use the available information. Employees find it far easier to carry on traditional transaction marketing than to practice customer relationship marketing. Effective database marketing requires managing and training employees as well as dealers and suppliers.

The third problem is that not all customers want a relationship with the company, and they may resent knowing that the company has collected that much personal information about them. Marketers must be concerned about customer attitudes toward privacy and security. American Express, long regarded as a leader on privacy issues, does not sell information on specific customer transaction. However, American Express found itself the target of consumer outrage when it announced a partnership with Knowledge Base Marketing, Inc that would have made data on 175 million Americans available to any merchant who accepts American Express cards. American Express killed the partnership.

AQL, also targeted by privacy advocates junked a plan to sell subscribes’ telephone numbers. Online companies would be smart to explain their privacy policies, and give consumers the right not to have their information stored in a database.

European countries do not look favorably upon database marketing. The European Union passed a law handicapping the growth of database marketing in its 15 member countries. Europeans are more protective of their private information than are US citizens.

A fourth problem is that the assumptions behind CRM may not always hold true. For example, it may not be the case that it costs less to serve more loyal customers. High-volume customers often know their value to a company and can leverage it to extract premium service and / or price discounts. Loyal customers may expect and demand more from the firm and resent any attempt by the firm to receive full or higher prices. They may also be jealous of attention lavished on other customers.

When eBay began to chase big corporate customers such as IBM, Disney and Sears, some small mom-and-pop businesses who helped to build the brand felt abandoned. Loyal customers may not necessarily be the best ambassadors for the brand. One study found that customers who scored high on behavioral loyalty and bought a lot of a company’ products were less active word-of-mouth marketers to others than customers who scored high on attitudinal loyalty and expressed greater commitment to the firm.

Thus, the benefits of database marketing do not come without heavy costs, not only in collecting the original customer data, but also in maintaining them and mining them. Yet, when it works, a data warehouse yields more than it costs. A 1996 study by DWI estimated that the average return on investment for a data warehouse over the course of three years is more than 400 percent, but the data have to be in good condition, and the discovered relationships must be valid.