Database marketing is a form of direct marketing that uses customer information contained in company databases in order to tailor the message to a particular group of customers. Companies use information about their customers, or, in some cases, their prospective customers, to market products or services that are likely to be of interest to a certain type of customer. The information contained in the company’s customer database may include basic information such as name and address, as well as demographic information such as household income, age, race, and so on. It will also include the products the customer has purchased from the company in the past.
Most companies collect information about their customers and store it in data warehouses. Data warehouses are simply the computer files that contain this customer information and allow it to be sorted by various criteria. Information contained in a data warehouse can be segmented in various ways, making it valuable to companies as they try to target particular types of customers. Data warehouses are sometimes called database warehouses.
By sorting this information and segmenting its customer base, a company is practicing customer relationship management. Some companies will attempt to measure the efficacy of their customer relationship management by calculating the lifetime value of a customer. The lifetime value is an estimate of the present value of the business that a particular customer will bring to the company over his lifetime. Companies that employ customer relationship management and lifetime value analysis are usually focused on providing superior customer service in order to retain customers over the long term.
The marketing communications generated by database marketing are usually disseminated in large quantities based on customer demographics. For this reason, they are sometimes referred to as junk mail, in the case of direct mail, or spam, in the case of email communications. Because these types of communications are typically looking for a response from the consumer, they are also referred to as direct response communications.
Database marketing is used by businesses that market to consumers, known as business-to-consumer or B2C marketing, and by business that market to other businesses, known as business-to-business or B2B marketing. Because information about business is often more readily available than information about consumers, those companies that engage in B2B marketing will often have larger data warehouses than B2C companies. For that reason, database marketing is sometimes perceived as being more effective in the B2B space.