18th Mar 2013
How can DRM help businesses understand the difference between a ‘customer’ and a ‘problem’? Business needs to get as smart at debt management as they do in other parts of the customer engagement process, warns Elliot Howard.
CRM was the software we all had to get on-board with in the 1990s. Business mangers in sales, marketing and customer service had learnt that bombarding customer with unfocused, shotgun ‘marketing’ was expensive, ineffective and counterproductive. CRM appeared, applying to the ‘front office’ powerful back office technology, that soon repaid the purchase price by helping those business leaders save time and resource and increase opportunity.
In the meantime, we’ve learned that the real secret of CRM is it’s a way to remove the random and wasteful out of your marketing, sales and service activities so as to allow the business to answer questions that lead to internal best practice, e.g. which sales people are most effective? Which of my promotions worked last year, and why? Can I be confident this demographic will be interested in that new proposed product? What are our customers really asking for and what are their biggest complaints about us?
Now it’s time to apply that level of science to other parts of the business. Because if we could apply CRM-style analytics to the issue of customer debt, not just sales, we could start to accumulate the right sort of insights and get smarter ways to collect, connect and share information about your organisation’s debtors.
If you think about it, it’s surprising it’s taken this long to shift our attention to the collections part of the business. After all, organisations that chase delinquent customers with an avalanche of letters and calls have seen credit losses reach new highs. As debt continues to be an issue for UK customers, we need to work on better ways to collect, not just sell. It’s becoming clear that companies, in particular service providers and retailers, need to be as good in their debt collection processes as in their customer outreach.
By applying customer relationship management (CRM) style analytical techniques to the issue of debt, rather than customer management, we end up with a new category of useful technology: Debtor Relationship Management, DRM. And the good news is that some leading UK companies have started benefiting from this new twist to the CRM story.
At the same time, it’s obvious that not all firms have yet had this insight. A survey our company commissioned last year, for example, found that only a quarter of companies described their segmentation profiling as “fully optimised”; 14% said their system needs a complete overhaul in this respect. The inability to analyse debtor profiles was another related focus of concern; in all, almost half of those surveyed told us there is definite room for improvement on this front.
The way forward to DRM is to use analytics to help test new contact and risk mitigation strategies. Why? Because such strategies require robust data to support change. One such instance of analytics-based best practice is using postcodes as an indicator of risk. Or perhaps there is a high level of delinquency on a certain product; you need an alert system to spot sufficiently early which cases are connected to that product - and assign resources to proactively manage the issue. An added bonus: all this good work can go upstream into underwriting.
For instance, say a type of crediting option on a luxury good purchase is related to a high default rate. A DRM-informed strategy adjusts the business on that basis and fine-tunes pricing and acceptance criteria. Another area might be where you have a customer in default on the purchase of a luxury item. Here, a whole-customer view can be invaluable. You need to know about the customer’s mortgage, personal loan, their risky joint loan, their student loans, on-going payments on the household car and so on.
The point is that targeted use of analytics in the debt collection process is really about giving you, as a supplier, the power to intelligently identify trends that matter and take corrective action to manage that risk, rather than have to react to it. In other words, the ability to always have a consolidated view of the customer so as to provide a tailored, helpful service to address the situation before it becomes problematic.
There are all sorts of broader business benefits with DRM. Risk can be safely contained, yet more flexibility can be extended to customers who spend well. More strategically, you can think about offering preferential terms to ‘safer’ customers, differentiating themselves in the process and encouraging these customers to spend more – something that could be a real game-changer when the market picks up. The alternative is to be passive and watch as customer accounts all go to red status at once.
Understanding the difference between a ‘customer’ and a ‘problem’
There are some signs of recovery flagged for 2013, which is great. But essentially our economy remains static and we face an uncertain period of cost-control, with consumers reining in spend or trying to whittle down their own household debt. As a result, defence of your market share and improving your bottom line may depend upon further efficiency gains. Smart business in 2013 equals a focus on the real behaviour of customers and better managing the behaviour of those that have defaulted.
DRM is your best way of doing that – ensuring that those who have unfortunately over-extended themselves but have every intention of making good their credit are properly looked after, or identifying clearly what cases are hopeless from your point of view. That will help make activity much better targeted, collections departments equipped to better utilise resources, expending less effort yet recouping more payments.
That’s why it’s time to move from CRM to ‘DRM’ and beef up your sales, marketing and customer service and collections management efforts. Why? Because the promise of knowing both your best customers and debtors could be just the extra edge you need to manage your way through the recession and into sustainable, long-term success.
Elliot Howard is the UK director of Sopra Software Solutions, a provider of credit collection management platforms and mortgage solutions.