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Direct Marketing Essentials – Know and Keep Your Customers by Using Your Database
So why on earth should you keep a database? Well here are some reasons:
- Provides a comprehensive picture of customers and prospects
- Increases value to your customers by providing up-selling and cross-selling opportunities
- Allows you to match products and services to customers’ wants and needs
- It is the best tool to help you build relationships with customers
- Helps retain existing customers and acquire new customers
- To provide a definition for a shared database, it is a way to record relevant data about your customers and prospects. It only contains information that helps you maintain relationships with your existing customers by recording a history of communications over time.
- Databases should be planned and developed as a separate entity to your overall strategic plan. If you’re a small business, recording the information in an Excel spreadsheet should be easy (just make sure you back it up on more than one computer, or an external hard drive).
- Large businesses generally prefer an off-the-shelf or purpose-built database system that can be tailored to specific business needs or easily integrated with other database systems in use such as sales, financial and operations.
- Key aspects to remember when planning your database are:
- How you collect data
- What kind of analysis will be done?
- How do you report on data?
Be really careful when collecting customer information. If you’re selling consumer-based products like beer, asking for a customer’s job title isn’t relevant information. However, if you are marketing a conference in a specific industry, this type of information is what you are after.
I’ve also learned that the more fields a customer has to complete, the less likely they are to complete a transaction, whether it’s an email inquiry or purchasing a product online. So make sure you collect only the information you need.
In some instances, you may be able to ask an additional question that may help you gain more insight into the customer. For example, requesting a customer’s birthday can help you provide a special birthday offer.
Collecting customer data on the Internet
Many businesses today allow customers to update and manage their own personal information using a secure page within their website. The benefits are significant, where the customer essentially becomes the data operator. There is no manual input required by the business and as a result less administrative costs are incurred. The Internet simply feeds directly into the database in real time.
Fairfax Media sets a great example, where you can choose the online content you want to receive and it’s up to you to keep your address and contact information relevant. BPay is another good example of customers being able to update their financial data in real time. If your credit card has expired, your transaction will not be processed until the new details are updated and approved by the transaction system.
Learning from your database – analysis and segmentation
Your business database is multi-dimensional that provides a lot of information about your customers. You should be able to easily analyze and segment it while building and maintaining customers.
Typically the data collected may include geographic information such as address details, demographic information such as age, marital status or number of children. Whereas psychographic information typically includes more abstract characteristics such as interests and opinions.
A common example of database segmentation might include analyzing the geographic trends of your customers, derived from a collection of address information. If you find that certain suburbs are buying from you, it may be beneficial to drop mail in these suburbs, or to provide a more personalized offer to your prospects, you can engage a list broking company that specializes in gathering customer information. Tailor your customer profile.
There is usually a $250 set-up fee to rent the list for one-time use, after which the database determines how accurate the data is, its ownership and the customer information you request (such as email and mail).
Please remember that a rented list is only a one-dimensional database and is used to test against your database, usually in acquisition marketing campaigns.
Financial data – a simple guide to analyzing RFM transactions
There are three principles you need to be aware of when evaluating customers’ previous buying behavior, which will provide key information on your customer’s previous buying habits. These are:
The acronym is obvious: RFM
Renewal The most predictive tool, allows you to document the latest purchase or communication activity.
A common assumption might be that recent customers are more likely to buy from you again. In this example, you would select customers by most recent purchase date, then contact each of them as they reach the end of the purchase cycle.
Frequency Indicates the number of purchases over a specified period or time frame.
If a customer likes your products they are more likely to buy from you again. In this instance you will communicate regularly with your customers, perhaps signing them up to email broadcasts. This is a great way to send relevant product information, new sales or new product information, and also provides an opportunity to upsell/cross sell.
monetary It is the total expenditure incurred by the customer during the same period.
Customers who spend more money can do so again, whether it’s over a period of time, or once off. In this instance, a special promotion may be the best way to reattract this customer.
In summary, the most valuable customers are those that rate highly using all three (RFM) criteria. By providing a measure of past buying behavior, it allows you to predict future behavior, accuracy is an essential component for database prediction. That’s why the old cliché ‘it’s cheaper to keep an existing customer than to find a new one’, is actually very true. Besides, it makes good business sense to get to know your old customers.
To illustrate the power of retaining old customers, I’d like to show an example of winning back customers in the retail sector. This could potentially be applied to any retailer such as clothing, cars or sporting goods.
Generally every retail category has a recurring sales ratio. Clothing businesses typically have a three to six month ratio, as customers tend to buy seasonally. With cars, you have to upgrade every 3 years or when another model is available. Based on the repeat ratio, each retailer has an inherent ‘reverse horizon’, where the customer will lose out to the competition if they are not reactivated within a given time frame. (Claude A. Johnson, Winning Back Customers Through Database Marketing).
Then, using the valuable RFM information provided by your database, you can select customers who have not shopped at a store within a certain time frame. From there, you can further target the customers who spend enough money with you and are the most valuable to the company. (It is always a good idea to focus on the top 20% of your customers as they will always provide a greater return on investment).
An offer might include sending a personal letter directly from the business owner saying, “I haven’t seen you in a while. I’d like to invite you to visit our store to see our new selection of branded products”. Enclosed within the letter may be a personalized voucher offering a 20% discount on any purchase. You may very well wonder how a successful marketing campaign for a passive customer can possibly be. The answer is very successful.
Campaign history reporting
One of the most powerful advantages of database marketing is the ability to measure the results of each promotional campaign or event. Unlike other advertising mediums, there is absolutely no guess work.
But many businesses fail to record their campaign history. Response and conversion rates provide evidence of marketing successes and failures and allow you to test element results with campaigns. But I will discuss in detail about simple ways to test, measure and record your marketing activities in my next blog.
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