One of the most important decisions for any B2B marketer is whether or not to outsource the marketing database. There are strong arguments on both sides of the debate. According to Nick McConnell, sales & marketing director at data management company Broadsystem, the FTSE100 is split roughly evenly between companies that outsource their databases and those that keep them in-house. Individual circumstances count for everything when making this decision.
Given that making the wrong choice can dramatically reduce the effectiveness of direct marketing campaigns and in extreme cases put a halt to all marketing activity it is vital that companies are fully versed, not only in the arguments for and against outsourcing, but also in how to ensure a positive relationship with the database management company.
Why outsource?
There are three main reasons why companies choose to outsource. The first is to apply extra resource to the marketing database. Steve Clarke, client services director at database management company CDMS, believes that: Given the choice, everyone would rather go in-house, but they can’t, because they so rarely get access to the necessary IT resource. The IT department always has other more pressing issues to deal with and tends to see the marketing department as a nuisance. In hiring an external company you get a team of people dedicated to your database, with service level agreements and proper accountability.
The second reason is to acquire specialist expertise. Apart from the obvious IT skills required to run these databases, companies need to bring in analytical and marketing expertise. As Sue Walters, head of data analytics at data management company Experian, says: It’s hard enough to recruit these staff when you have full time positions to fill, but often companies looking to manage their own databases won’t have enough work to justify hiring a full-time analyst. That’s where it becomes almost impossible, and they’re better off using someone like us. We have a team of analysts working across many clients. This also means that they can share best practice and always be up to date with new ideas.
Finally, for many companies, outsourcing is the better option because it is cheaper. Buying the hardware and software necessary to set up an in-house database is expensive and very often the technology is outdated after a few months. Outsourcing the activity obviates the need for large upfront capital expenditure, and in the short term at least can be a less expensive option. The flipside of this is that while those who buy the equipment and develop the in-house expertise will eventually end up owning it all and having very low costs, the outsourcer will always be relying on, and paying, another company.
Why keep it inhouse?
This is not the only reason why keeping database management in-house can sometimes be a good option. Nick McConnell at Broadsystem believes that, You need to have the scale for outsourcing to be worthwhile. If you’ve got fewer than 20,000 contacts on your database, then it’ll be easier, cheaper and more effective for you to do it yourself. At the other end of the spectrum, very large companies will be able to attract the IT, marketing and analysis skills required to run an in-house database, and they will also be able to allocate a part of the IT department to running it, so that it is not competing for time with other parts of the organisation.
However, perhaps the primary reason why marketers choose to keep their databases in-house is to retain control over them. Of course, if they were to hire a good database management company then they ought to have just as much control if not more than they would over their in-house department.
While picking the right supplier is important in every area of purchasing, when it comes to marketing databases it is absolutely business critical.
How to get it right
The first thing to do when considering outsourcing a database is to work out exactly what you need from a partner, and to check that it is a realistic brief. Even the National Outsourcing Association does not believe that outsourcing is an answer to every problem. Its chairman, Martyn Hart, comments: The one mistake that companies often make is that they regularly outsource a problematic process. It’s imperative that a company thoroughly understands what the process is, what improvements need to be made and what the data management outsourcing project hopes to achieve.
The next thing to do is to investigate the legal implications. Simon Halberstam, partner and head of Internet and e-commerce law at law firm Sprecher Grier & Halberstam LLP, offers this advice: You need to ensure that your database partner will process the data in such a way as is consistent with the Data Protection Act. You need to have the correct clauses written into your contract with that partner. You should also ensure that the contract and the terms of the privacy policy provide for the possibility of bringing the data back in-house, or you may have to go back to all the people on your database to re-acquire their consent.
If outsourcing still looks a good option after that process, then it is time to meet some agencies. Kevin McSpadden, MD of data management company More2, cautions against selecting the cheapest supplier: When you work out the true costs of not using your data well, or not utilising best practice, or missing opportunities, it’s a lot more expensive; so do your return on investment calculations and don’t just pick the one that comes in with the lowest quote.
Most experts recommend choosing a partner that has experience of both the sector and the task in question. It is also advisable to do a walk-through of the actual database to see how it will work in practice. While it is vital to agree clear service standards, it is also worth bearing in mind that, as with all negotiation, the purpose is to agree something which is deliverable and desirable for both sides. All too often buyers will make unreasonable demands, vendors will agree to them in order to win the contract, and will then find themselves unable to deliver, often irreparably damaging the relationship.
Strong foundations
It is worth remembering that a database is only ever as good as the data that it contains. While it is important to ensure a strong infrastructure whether it be in-house or outsourced it is equally vital to invest in accurate data.
Tom Scampion is VP sales at Datanomics, a data cleansing software producer that has helped Powergen, Colt and other companies identify the gaps and the duplication in their marketing data. He claims that: Over 50 per cent of CRM applications fail, simply because the data supporting them isn’t good enough. The database can be as good as you like, but if it’s not built on solid data foundations it will never work.
