Accurate, clean data is the lifeblood of any form of marketing. However, to get the most out of it, the data needs to be organised and used effectively. The growing complexity and sophistication of available hard and software means that managing a database effectively as they’d like is often beyond the resources of companies.
Many businesses, particularly smaller organisations, lack internal expertise in database management and consider outsourcing a good way to obtain the skills they need. Expert data analysts particularly in the B2B sector are rare and therefore expensive, especially if businesses don’t make the maximum use of their skills.
Companies also outsource their database to gain access to the sophisticated interrogation tools now available: such platforms are costly and need regular upgrading, so it makes sense to buy-in to someone else’s software if businesses don’t need to use them all the time. Third-party providers have the most up to date tools available and are both proficient and efficient in their use.
In the long-term, outsourcing a database should save money. While the cost of acquiring data is increasing all the time, database hosts purchase information, upgrade their hardware and invest in state-of-the-art software as routine. As Nick Frazer, director of B2B marketing at Experian, says, A good return on investment is the ultimate measure of success, and for an outsourced database is usually much higher than one handled inhouse.
The plus points
As well as offering positive advantages, outsourcing a database can eradicate negatives. For example, managing a database takes time. If a database is outsourced, the host deals with data suppliers and services such as cleaning and analytical work, etc.
Once outsourced, the database owner is therefore released to carry out core business work and is less affected by staff absences through holiday, illness or business events. Database hosts are also very knowledgeable about the law pertaining to data protection and are expert at ensuring that data handled by them stays within the law.
Oddly enough, outsourcing can sometimes also give marketers better access to their own data than they might have internally. In many companies, marketers have to queue or book time with their IT experts. Some IT departments are also still more familiar with constructing operational systems such as stock movements and invoicing than with building the very different picture of the customer that comprises a marketing database. Therefore, there are always other business-critical issues that can take priority, and campaigns may be delayed. Database hosts, by contrast, are dedicated to their clients’ needs and are thus much more responsive to demands.
What’s on offer?
According to outsourcing service providers, this is a growth market. Frazer of Experian says, We expect to see a lot more people outsourcing their database; already there’s a growth in the market. At the bottom end of the range of outsourcing services on offer are companies such as printers carrying out basic data processing and hosting simple databases, often of mailing lists.
Medium-sized data bureaux clean and update data, build and host marketing databases and provide campaign management services. At the top end are the large database companies that supply sophisticated CRM tools and expertise.
Most database hosts already offer something in the way of a menu system from which clients can choose the level of service they want including: advanced modelling techniques; segmentation processes; test-learn-test technology (which samples responses during campaigns and uses them to modify the campaign as it’s running) analysis of previous campaigns; best of breed technologies; and scalability to support growth areas.
Some vendors take on campaign planning and management for their clients and using the right analytical tools can fine-tune a campaign for different segments of the market within hours of its launch.
At the outset of an outsourcing contract
As well as the pros, one of the cons of outsourcing is that the host knows little of the business model detail, products and target audience of any company whose database it is managing, even if it understands the commercial and strategic issues of the marketplace. It will take time to get up to speed. Frazer of Experian says, Clients sometimes express concerns about outsourcing to the effect that their knowledge about their own database is waning; they are in effect losing expertise from their business.
Andrew Robinson, MD at Lyris adds, Consultants learn things from your business and without specific breaches of confidence apply what they have learned about the state of the market, what customers are looking for, etc. to help other clients.
The initial cost of outsourcing can be high. Katie Poyton, account director of data at Prospect Swetenhams, explains, The cost of building an outsourced database is typically the same as the running cost for one year inhouse, so outsourcing needs to run for some time for the benefits to be seen.
Contracts for outsourcing a database typically last a minimum of two years, built on a year-by-year basis. There’s little advantage in experiencing the initial upheaval of outsourcing unless companies are prepared to reserve at least one year. Over that length of time it becomes easier for companies and their host partners to set a roadmap for what they want to do and how they want to develop the database.
John Wallinger, database director at Craik Jones, suggests, For example, in year-one a business might concentrate on building the database, year-two could be dedicated to improving profiling and segmentation into customer types and year-three could develop prospecting using segmentation, etc.
Security
Companies are understandably nervous about unauthorised access to their business’ vital information and there are no security standards for outsourced databases. Lee Waite, director at Flamethrower, says, There are more companies who offer outsourcing as a bolt-on extra, in order to tie clients into their systems, than those whose core business it is and who can therefore be of real help to their clients.
Professional hosts will behave accordingly their reputation and future business depends on it but any safeguards must be negotiated when the contract for outsourcing is first drawn up.
Such negotiations typically include non-competing agreements, data controls, ease of client access, the host’s liability and the level of compensation offered if there is a breach of security or a lengthy period of down-time.As agreements are individually negotiated they vary hugely, but compensation of three to four times the size of the contract for a breach of security is frequently quoted.
What happens when the partnership ends should also be considered and written into the contract beforehand. There is no doubt that the client owns the data; the host returns it and destroys its own copy when the contract ends. However, a misunderstanding can arise around the ownership of programmes and solutions that might have been developed by the host over the life of the contract, to meet the particular demands of its client.
Such bespoke programmes are generally considered to be the IP of the host unless the contract specifies otherwise. Not only can database hosts use them elsewhere, but they are not necessarily bound to provide a copy of such programmes to their former client.
Waite at Flamethrower says, A clause clarifying ownership of bespoke programmes should be inserted into the contract when it’s drawn up. In such a very competitive market, database companies are likely to agree to such a specification (if they don’t, their competitors will) but are unlikely to offer it up-front.
Finding a suitable host
Before assessing third-party providers, companies must first list what they want from a database, what they want it to do and what they want to add to it. They should then consider possible hosts’ relevant experience, technical capability, cost, service levels and support offered. As Poyton at Prospect Swetenhams says, A lot of companies do B2C very well, but there are fewer offering good service levels for B2B.
As well as the routine questions and recommendations that any company examines when seeking to appoint a new partner, clients should determine how proactive the host is likely to be.
Simon Lawrence, CEO of Information Arts, says, Vendors should be hungry to keep the account and so should make proactive suggestions to grow it. Clients should also check the staff turnover of any potential host. Outsourcing is rather like dating; the longer you’re in the relationship, the more you know about each other!
Over the months and years during which a database is outsourced, clients and vendors build a relationship: the vendor learns what the client wants from its database and becomes knowledgeable enough to make suggestions; clients discover which of the vendor’s skills and techniques will help those most. It’s difficult and frustrating trying to build a good partnership with a company where the personnel is constantly changing.
Companies may wish to take their database back inhouse, but should only do so when they’re sure that they can replicate or improve on what their outsourcing company does. Although central to their business success, database management is not a core part of what most companies do. They are therefore less likely to be as proficient in database management as a company whose speciality it is.
Unless a company understands the processes involved in database management, has recruited IT staff with the right expertise, invested in sophisticated software and has hardware suitable to run it, it may be less proficient at gaining results from its own data than a host expert.