DATABASE MARKETING….THE SECRET BEHIND ALL

DATABASE MARKETING….THE SECRET BEHIND ALL THOSE BARCODE READERS….Regarding my post on data mining yesterday, reader Carl Manaster writes to ask:

Yeah, as a matter of fact, I have wondered for a long time about those loyalty programs. I find it incredible (in the sense meaning “unbelievable”) that it’s worth ~30% of my gross bill to Safeway to keep track of my purchasing habits. I realize, of course, that the un-loyalty-discounted prices are just grossly inflated, but still: use the card, save 30%; don’t use it, pay full price – they’re paying me that much for the information. If you know something about this, I’d welcome an essay explaining why it’s worth that kind of cash to them.

Your wish is my command. For a start, part of the reason is that, yes, the non-loyalty price is inflated. To some extent loyalty programs have simply replaced other marketing programs.

But the fact is that information about your buying habits is worth a lot. To get a taste of this, consider a cat food manufacturer who wants to mail out a flyer to 1 million people. To do this, they buy a list of 1 million names, print flyers, and mail them. The problem is, they know that only 20% of the population owns cats, so most of their flyers are wasted. But what if they could send their flyers only to the 20% of the addresses that represented cat owners? Take a look:

Scenario A
1 Million Names

Scenario B
200,000 Targeted Names

Item

Cost

Mailing List @ 1?

$10,000

Mailer @ 20?

$200,000

Postage @ 10?

$100,000

Total

$310,000

Item

Cost

Mailing List @ 20?

$40,000

Mailer @ 20?

$40,000

Postage @ 10?

$20,000

Total

$100,000

In the second scenario the cat food guys have paid 20x the per-name rate and 4x the total cost for the mailing list, but it doesn’t matter. The total cost of the program is one-third, so they pay up happily.

This is a simplistic example, but even so it illustrates the power of highly targeted knowledge. This stuff is like gold to marketers, who all understand that the true foundation of marketing is not advertising, but market research. Supermarkets in particular can profit from this because they carry a lot of items, sell in high volume, and have extremely detailed purchasing information. There are a lot of suppliers they can sell this information to, and it can be used in a lot of different ways:

  • Send out 10? coupons to some people and 30? coupons to others and track their success.

  • Track people who buy combinations of items.

  • Real-time tracking: did last night’s commercial on Joe Millionaire trigger a frenzy of buying?

  • Track repeat purchasers and target them for special promotions.

  • Etc.

The database marketing revolution (in its current incarnation) is about a decade old now, but it’s just getting started. (Remember the fuss over Amazon’s differential pricing experiment a couple of years ago?) Most consumer marketing people these days just try to track everything they can, figuring that even if they can’t use it now they might be able to use it in the future.

You can fight this stuff by using cash and paying the extra 30%, but even that doesn’t always work. That’s what I do, for example, just out of paranoid crankiness, but since my wife does belong to all the local loyalty programs and she does most of the shopping, even this minor act of defiance does me no good.

Resistance is futile. You will be assimilated.

Support Nonprofit Journalism

If you enjoyed this article, consider making a donation to help us produce more like it. The Washington Monthly was founded in 1969 to tell the stories of how government really works—and how to make it work better. Fifty years later, the need for incisive analysis and new, progressive policy ideas is clearer than ever. As a nonprofit, we rely on support from readers like you.

Yes, I’ll make a donation