CRM comes of age - An article by Sir Richard Heygate, Kaj Storbacka and Stephan Schusser

I am writing this piece jointly with Kaj Storbacka and Stephan Schusser, from Vectia (previously the CRM Group), a specialist CRM consultancy very similar in background and approach to my own company, Sophron. In preparation for an inter-company alliance to joint offer our services, the three of us recently spent time evaluating the most interesting cases the two companies had delivered during the 8 years since CRM first blossomed as a new marketing concept.

Our overwhelming conclusion from this analysis is that CRM, as a discipline, has now come of age. Sophron’s experience has mainly been in improving the efficiency and effectiveness of direct marketing and contact management; Vectia’s has been on understanding how the value customers put on their experience in interacting with a company, can be more precisely understood and used to focus new service offers and relationship management. Together, we have a wealth of evidence that shows both approaches can deliver significant bottom line value – typically 20% improvements in marketing ROI or better – and are mutually complimentary. There have been numerous discussions on the CRM Forum and elsewhere about the merits of service based versus marketing based approaches to CRM. From our point of view, the answer is simple. Do both, in a balanced and incremental sequence of CRM moves that seek to continually improve customer intimacy and bottom line impact.

To help others understand the basis for these conclusions, we agreed to write this piece around definition of the key CRM moves themselves, the optimal approaches to implementation, and the essential planning processes, which pinpoint the value and help develop incremental programs of action.

Key CRM moves
After evaluating our case studies, we grouped the most valuable CRM moves into 5 types and assigned to each typical levels of impact as below:

The main ingredients of each of these moves is as follows:

1. Targeted Product Sales:
This is where CRM started. Data Mining and propensity modelling create more focused direct marketing and sales prompts. Experience suggests that, in the short term, campaign hit rates improve, but in the longer term the gain tends to decrease, as the highest propensity customers are over-targeted. With the increasing availability of external customer data, everyone knows where the plums are. Consequent disappointment with returns from this first CRM move, contrasted with massive spending on infrastructure, has been a prime cause of early disillusionment with the discipline.

2. Contact management:
In this second move, growing customer insight and propensity modelling is close coupled to key points of customer contact. The key technique is Next Best Activity – NBA. In NBA, propensity modelling is extended to cover all the main products taken by every customer, so a sequence of suitable offerings can be made at point of contact. When NBA is combined with segmentation by customer potential, and focused on those with the greatest ROI improvement to be had, much more significant gains can be made than those in Move 1. Typically, we find CRM detractors turned into CRM converts by this single move.

3. Optimised Contact Management:
This move requires significantly enhanced process, tool and skill sophistication, but is a natural consequence of Move 2. Data on contact campaign outcomes, which shows the ROI obtainable at a very granular level of customer interaction, can now be fed to an optimisation model. Simulation can then develop optimal scenarios of contact management, often reflecting not just NBA based customer strategies, but different scenarios of care and dialogue to improve loyalty and purchase propensity (what we call “Customer Pathways”). At its most sophisticated, the Decision Engines, which manage this optimisation, can operate in Real Time. Forrester Research recently highlighted such optimisation as the key technique for future CRM users. Our own experience with our most sophisticated clients confirms the huge potential in this move.

4. Best customer experience:
It is critically important to gain adequate ROI for investments in improving care and relationship management quality. The key process to manage is the one which links service to sales around relationship management. Individual relationship managers are, in particular, expensive and, unless actively managed, can spend up to 80% of their time as service intermediaries for their key account customers, with little impact on sales. To improve ROI, it is important to develop an approach to evaluating all external customer handling processes, in terms of how they can add the maximum perceived value at minimum contact cost, and figure out how this can be translated into the greatest sales improvement. In our experience, managing this value and cost equation effectively can reduce relationship management cost by a third or more, and increase sales at the same time.

5. Best customer offer:
Improved customer insight, in particular "Needs and Attitudes" based segmentation, has the potential to predict customer demand for future products and services more accurately. Corporations can thus use this focus to establish strong positions in emerging needs segments, before competitors get into the act. For example, First Direct Bank in the UK made such a gain, by reacting faster to the increasing service quality demands of high wealth, high transacting customers. Increasing consumer appetite for new products will heighten the urgency of this CRM move, especially in fast moving industries, such as mobile telephone. Our own experience shows the importance of closely coupling the new segmentation to advanced customer usage data, so that new propositions can be continually honed to differentiate from competition.

These marketing and care based moves above can be tackled independently, but are complimentary. Too much customer targeting can produce negative results, which can be offset by an increased in perceived care. A balanced program produces the greatest ROI.

Approaches to implementation

Examination of successful cases of CRM ROI demonstrates that the implementation technique is as important as the move itself. Cultural change and skills building are often more complex and time consuming tasks, than technology implementation. Three different approaches to implementation – "serious" piloting, "Centres of Excellence", business unit change – need to be aligned against the magnitude of the change management task in each CRM move, as below.

Most CRM moves begin with pilots to reflect the considerable amount of learning involved in developing new customer communications and marketing processes, however very few organisations invest enough in the pilot process itself. In our experience, it is absolutely essential that the pilot is given sufficient latitude and ambition to test out new customer management approaches at a level which can produce significant results. Our belief is that unless the pilot itself delivers exceptional ROI, the chance of the ensuing roll-out being correctly focused and supported by senior management patronage is close to zero. Three different approaches can be taken:

1. "Serious Pilots":
Where a fundamentally new, but well defined, marketing discipline, such as NBA, is to be implemented, a serious pilot is called for. Typically a subset of the total customer base will be given its own marketing management, new contact tools etc, and progress tracked against a similar sized control group. Financial modelling and performance measurement is absolutely vital for the pilot’s credibility. Typically, 3 months will be needed for financial modelling and planning, 6 to 9 months for the pilot itself and a further 12 for the roll-out. Pilot team sizes of 6 to 10 experts will be essential, plus customer handling agents as required.

2. Centres of Excellence:
Where a corporation is moving to the leading edge of either new CRM tools/processes, or customer propositions, a Centre of Excellence approach is useful to create a permanent R&D capability. Again, the proposition should be taken seriously. The notion of the "Pharmaceutical Model" applies, which shows how Pharma companies devote significant resources to their R&D facilities, as they know that new drugs drive the bottom line.

Organisations where customer management processes drive the bottom line, should set up their own R&D facilities to design and test new process innovation. For example, one of our financial services clients used the whole of one of their geographic areas – 20 branches and 2 contact centres - as a test zone for new customer facing processes. The zone’s performance was tracked on a full set of efficiency, service and employee morale measures against all other areas, and the results gave credibility to rolling out the leading edge moves created.

3. New Business Unit tests: Where a totally new customer proposition is to be tested, it is difficult to ring fence within an existing business, and the best tactic is to set the proposition up as a new, green field, business unit. For example, a UK savings bank took this approach to create a radically new service for their top tier customers. A new business unit, with its own executive management, and full set of customer management and product design functions was set up. The customer base was built incrementally from a few thousand in the launch test bed, to over a million by completion. The business unit approach created the entrepreneurial environment to fundamentally re-think the business, and generated outstanding results.

Above all, we believe that creating and integrating a new mix of skills building, new services, new marketing processes and skills is THE entry barrier for successful CRM moves. If the same degree of attention and investment had been applied to this challenge in the first round of CRM investment, rather than a one sided focus on massive technology investments, the credibility gap around CRM ROI would not exist.

Essential Planning Processes

All too often, the battle to create CRM ROI has been lost in the planning processes. Corporations have plunged ahead with massive infrastructural investments that trusted to faith alone in bringing in adequate returns. "This is all new and exciting stuff", trumpeted the prophets of the new discipline, "of course it must bring in outstanding benefits". Tracking through our 8 years experience, it has been obvious where things have gone wrong. CRM, is, above all, a complicated discipline to implement, especially in the linked areas of process and skill change. An incremental approach is required, but this often means that the first benefits are small. Contrasted with major spend on infrastructure, they look even smaller.

Now the discipline has come of age, no one should fall into the same trap again. In particular, two types of planning tools are now available.

Firstly, detailed case material showing best practice results from each CRM move can be built into a tool which generates both ROI based business cases for a CRM program, and helps focus each initiative on the best practice process needed. We call such a tool "Value Driver Analysis" (VDA), and find it essential in positioning CRM moves against increasing complexity and return. VDA uses best practice case experience to:

  • Estimate the best return for each of the potential CRM moves.

  • Link these to the underlying process, skill and technology changes needed.

  • Help strategic planners to optimise ROI and other objectives in an incremental development plan.

  • Help implementation planners understand the change scope of each project, thus the pilot versus centre of excellence decision.
  • Provide a permanent mechanism for honing value based CRM planning against emerging results.

Secondly, needs and attitudes based segmentation is key to managing customers as a portfolio of potential, however the technique must practically linked to measurable customer behaviour, so its accuracy can be honed over time.

Trying to develop all new thinking about emerging customer preferences through de novo research is, we believe, impractical and inaccurate. Rather, we would recommend developing techniques for understanding the value customers place on communication, product/service usage, care and service processes, then using this evidence of real customer experience and reaction to re-structure segment thinking.

This segmentation can then be related to potential value and profitability, and in turn linked to the optimal investment in new sales, marketing, product development, care and service processes.

Even more importantly, the basing of all this new marketing thinking in actual customer interactions, can now be systematically managed and continuously linked back to emerging customer usage data, in a permanent test bed to evaluate changing customer reaction to new offers. Thus the whole process can be made iterative and learning based.

The fickleness of the consumer towards new products, in every category from Personal Computers to Text Messaging has consistently proved traditional market planners wrong. The use of customer usage data to drive continuous product/offer accuracy and relevance is, we believe, an essential future ingredient of market planning.

Together, the two planning processes combine to produce a focus for translating increased understanding of customer needs and potential, into an increasingly sophisticated CRM engine for customer contact and offer presentation. Our business cases demonstrate that the best practitioners (and those who create the greatest ROI) are those who understand how to manage operationally this two dimensional learning curve.

A final word on skill building. In this piece, we have set out no less than 10 separate CRM moves in design, implementation and continuous planning. Our cases show that building skills in the needed disciplines is the hardest task for corporations determined to improve their marketing ROI. Our own belief is that this skill building can only take place when CRM is recognised is an integral part of marketing discipline, education and job mapping, rather being regarded as a separate, technology driven skill. We are still some way off this desirable end state, but when it is achieved, CRM will truly come of age.

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