Although not strictly related to personal finances, I thought you might be interested in a recent press release I received from a company called "Epsilon" in Burlington, Mass. Epsilon says it is the largest database marketing comany in the United States -- and I have no reason to doubt their word.
But what is "database marketing?" According to Epsilon, the term describes "direct marketing programs that employ computerized marketing information systems to identify and personally communicate with the most profitable customer/prospect segments."
What they're talking about in that mouthful of jargon is a computer library that contains a large amount of personal and business-oriented information about a company's customers and potential customers.
According to Epsilon, in most cases 20 percent of a company's customers provide about 80 percent of the business. Analysis of those "best customers" can generate a demographic profile that can in turn be used to identify those prospects or groups of prospects -- what Epsilon calls "prospect segments" -- with the highest potential for business. Marketing appeals are than targeted to the most attractive segments.
What does all this mean to you? You're a "prospect" when you receive all that "junk mail" everyday -- sales pitches, appeals for funds, etc. Carried to a logical conclusion, the volume of such mail that you receive may be reduced to just those areas that your demographic profile indicates you are likely to have an interest in.
Think of the savings in wear and tear on your waste basket if database marketing can eliminate all of the direct mail pieces the computer says are not apt to appeal to you. With a perfect system, what's left will be only those things that you will be happy to get, on subjects you will be delighted to hear about.
We both know the system will not be perfect. But it's reasonable to assume that this concept -- which really makes sense from a marketing point of view -- will reduce the volume of junk mail and narrow the focus of what remains to your particular interests and concerns.
Epsilon has a rather impressive list of clients -- companies like Pan American World Airways, Hertz Rent-a-Car, Hyatt Hotels, and nonprofit groups like the San Diego Zoo, Memorial Sloane-Kettering Cancer Center, Save the Children and the Braille Institute.
Of course the idea of all this information about each of us being gathered in some large computer somewhere may be a little unnerving. But it's being done all the time, and I don't have an answer to that problem.
In time, database marketing may help hold down distribution costs by substituting more productive narrow-beam marketing for the scattershot methods of the past. And anything that reduces the amount of unwanted mail we get every day, and eases the load of our long-suffering mail carrier at the same time, can't be all bad.
Q: Regarding your advice to invest in 15-year zero-coupon bonds, you said there are income tax consequences. Why didn't you mention zero-coupon municipal bonds, which are free from both federal and state income taxes? Was it a matter of safety?
A: No, the omission of tax-free zero-coupon bonds was not for reasons of safety. Municipal bonds are as safe as corporate bonds of the same quality. You have to read the answer in the context of the question.
In the column you refer to Aug. 20 , the question had to do with an investment for a three-year-old, to be used as a basis for a college fund. In the absence of other income, the child would have no tax liability until the investment income exceeded $1,000 -- and even then the earnings would be taxed at a very low rate.
Under the circumstances, a corporate zero-coupon bond makes more sense than a municipal. In this no-tax or low-tax situation, the yield spread between the two makes the corporate bond the preferred investment in this specific case.