Value Comes First
Tactics to Ensure Investments in Customer Relationship Management Produce Results
By Michael J. Penney
The value of customer relationship management (CRM) is unchallenged, but the method for capturing the value remains elusive. Any opportunity to grow or retain market share and profitability must be considered, and the potential benefits frequently justify the allocation of significant resources and investments.
For direct marketing companies, the key is to ensure that their investments in CRM programs pay off. The deployment of significant resources and investments implies the assumption of risk, and the issue for many organizations is properly managing that risk. Consider the following situations:
Situation 1. A financial services company believes there is value to be gained by cross-selling products and services to existing customers. To accomplish this, plans are made to create a unified customer data warehouse that will be leveraged by a new call center, sales force and marketing campaign management and analysis tools. Naturally, massive process and organizational changes will be required along with the new technology. The company faces years of internal change and investment.
Situation 2. A consumer goods manufacturer is struggling to retain market share and wants to develop direct relationships with its consumers. It believes putting in place processes and technologies that currently are maintained by distributors and retailers are necessary to understand customer buying behavior in its industry.
Situation 3. An insurance company believes that greater knowledge about its customers can lead to more efficient prospecting and is considering increasing its direct marketing investments to initiate direct contact with customers while reducing its television and print advertising budgets. Initial thoughts are to create customer and prospect data marts and to acquire and deploy customer touch-point systems and processes. However, it believes this undertaking will take years to implement and cost tens of millions of dollars.
When customers and prospects consider a company's value proposition, they typically consider a number of factors, notably, the product, supporting services, and the absolute and relative prices. Many companies begin their CRM efforts by dedicating the largest part of their investments to service support, a.k.a. customer relationship management—delaying investment in customer relationship marketing until the infrastructure is in place.
There are two major issues with this approach:
• Much of the potential value gained from CRM initiatives is delayed, often for years, and
• Frequently, the developed CRM infrastructure (if, and when, finished) doesn't allow for effective and efficient high-value marketing communications. In general, many organizations lack discipline in establishing specific targets and performance metrics to drive CRM strategy development and investments.
As with many major investments, the ability to extract some value as early as possible from CRM programs is key to success. Early ROI gains imbue confidence in the investments and often help shape the later stages of investment programs. Here are a few specific tactics that will aid in extracting initial value:
1. Set Targets. Set long-term measures and targets around essential drivers of value, e.g., 1) customer retention, 2) customer acquisition, and/or 3) upselling and cross-selling customers.
2. Develop Test Programs. Create intermediate targets and develop specific programs to achieve these short-term objectives as well as demonstrate that the eventual long-term goals are achievable.
3. Use Knowledge. Incorporate lessons learned in the early stages into broader CRM initiatives to ensure "institutionalization" of successful approaches.
Now, let's examine how this prescription could be applied to the previously described situations:
Situation 1. The financial services company should begin with analysis of its current customer base and transaction history to determine purchase associations and sequencing, and try to predict what products/services are likely to be most attractive to each specific customer or customer segment. A test process could be set up, targets could be determined, and test and control groups could be established to measure the results. Results would then feed the design of more durable and company-wide processes and technology.
Situation 2. The consumer goods manufacturer needs to evaluate the benefit of direct communication with consumers and understand how consumers can be effectively targeted given the challenges manufacturers confront in acquiring transactional data. Direct market research and data collection can determine the value potential of direct interaction, as well as define the profile of an attractive consumer (e.g., analyzing demographic and behavioral data). It would then be important to decide how to use indirect sources (e.g., compiled lists) to target prospects. Programs can be developed to test response to direct marketing campaigns. The results would help justify a broader CRM plan while simultaneously providing a road map for design and investment.
Situation 3. The insurance company could begin by analyzing its existing client base to develop a profile of its best customers, as defined by lifetime value or profitability. The profile would take into consideration both revenue and cost components for the acquisition and management of the policy over its life. Targets could be set to maximize profitability, and specific marketing and customer service programs could be developed that aim to reach these targets. Examples might include reducing acquisition costs by using response lists that have characteristics from its best customer profile, or creating a scoring mechanism to apply against a compiled list. Tests could be conducted to determine the value in knowing more about prospects, which could drive the plan for broader CRM initiatives.
Aggressive and thoughtful target setting and program testing can provide inherent, near-term value and help guide longer-term CRM investments. Companies are well served by taking a rigorous, analytical approach to establishing goals and targets for CRM, and following with measurable test programs. This "jump-start" will be a key element of success for all CRM efforts.
Michael J. Penney is the executive vice president of market development for Epsilon and can be reached at (781) 685-6800, or by e-mail at email@example.com.