In-Depth

Putting the CUSTOMER back in CRM

In 1993, Michael Hammer and James Champy started a pebble rolling down a very long hill. Their book, Reengineering the Corporation, brought to light an urgent need in today's business environment: Businesses cannot survive and flourish without first restructuring their organization, processes and very thinking around their customers. That same year, Don Peppers and Martha Rogers published The One To One Future, which introduced the concept of "one-to-one marketing." Marketers, explained Peppers and Rogers, must build individual, personal relationships with each and every customer. Five years later, Patricia Seybold put an e-commerce twist to this same theme in Customers.com. In her book, Seybold showed how successful businesses must become more "customer facing" -- a critical factor in any business, but an essential issue in the electronic commerce environment where customer retention is such a challenge.

Today, that original pebble has triggered an avalanche. Customer relationship management (CRM) is now one of the hottest business drivers of new systems initiatives in Fortune 1000 companies. Seemingly every software vendor offers a CRM solution. But despite its momentum and mindshare, all too few CRM initiatives result in companies that can better understand and service their customers. In order to understand why customers have been orphaned by the CRM process, one must first understand what CRM is and what its products provide.

Defining CRM

Customer relationship management is first and foremost about customers. Businesses have become increasingly aware that customers buy a relationship more readily than a specific product. That relationship can have many facets, including, but not limited to, the salesperson, the marketing material seen by the customer and support staff that helps the customer with problems. Good relationships generate repeat business, as well as word-of-mouth referrals (which can be the most effective source of new customers). Conversely, bad relationships and negative referrals translate into lost business. A business that has no relationship with its customers is vulnerable to "customer churn" -- a lack of loyalty where the customer flits from competitor to competitor.

Many an organization has discovered that Pareto's Principle (or the 80/20 Rule) applies to its customer base; in this case, that most of its revenue is generated by a small percentage of its customers. Using this relationship, companies can more effectively focus their marketing efforts on understanding and delighting the small percentage of customers that drive the lion's share of their revenue -- the foundation of CRM. Taken a step further, valued customers should feel that their relationship is a personal one. This is the premise of one-to-one marketing: Make each customer feel special, valued and listened to, and they will remain loyal and likely increase their business with you.

So, what can a company do to better understand its customers and service their needs? Any effective CRM solution must be able to answer the following questions:

1) Who is your customer? This seemingly simple question is not as straight-forward as you would think. For many businesses, there are multiple answers. Consider, for instance, a company that manufactures toothbrushes. Who might its customers be? Supermarkets and drugstores are an obvious answer. But as a consumer packaged goods manufacturer, the toothbrush company must also pay attention to the consumers that ultimately buy the toothbrushes. If consumers do not like the toothbrushes or their price, they will not buy them -- and, in turn, supermarkets and drugstores will stop ordering them. Many companies need to view every downstream member of their supply chain as a potential customer, each with their own unique characteristics and needs.

Once you have identified your customers, you need to decide which ones you care about -- Who are your profitable customers? If the 80/20 Rule applies, it is important to know which customers drive revenue so that you can focus your efforts on better understanding them. Customer profitability rankings are a common technique for identifying your most valued customers.

Customer retention can be an added twist for those industries where customer loyalty is particularly challenging. This is best seen in the telecom industry, where there is little to differentiate the various phone services. High customer turnover and low retention -- customer churn -- can cost large phone companies millions of dollars. Using historic data, retention analysis attempts to identify those customers who are most likely to remain loyal to a company and its products, as well as those most likely to be lost.

2) What do they do and like? It is not enough to simply know who your customers are. In order to please them, you must also understand how they behave and what motivates them. For example, Point of Sales (POS) systems in retail environments provide a detailed view of who purchases what and when. This data enables market basket analysis that identifies what products are likely to be purchased together. With this information, stores can stock their shelves and discount products more effectively.

Market segmentation slices a company's customer base finer and finer in order to get a more personalized view of customers with similar behavior or needs. Segmentation is the foundation of campaign management and most other marketing activities. Rather than send a general message to all of its customers, segmentation allows a company to refine its message to reflect the specific needs of a particular customer segment (hopefully a profitable segment). For instance, a hospital advertising its geriatric
facilities would want to target people older than 65, not young couples with small children. Taking segmentation to its extreme, one-to-one marketing is all about segmenting down to the individual.

3) What don't they like? Customer acquisition is very expensive. It costs considerably more to attract new customers than it does to retain them. Yet for all the dollars and hard work invested in attracting and keeping customers, it can all be undone in a single moment -- when the customer has a problem. How customer problems are handled and how your customer feels during this process is a critical component of customer relationship management. If customers cannot get the help they need, or the process is laborious and frustrating, there is a good chance you will lose them.

Call-center and customer support analysis helps identify customer problems and needs. Not only does this aid in the management of customer support and complaint resolution, but it can provide aninvaluable conduit of product function and quality feedback. Too often, the sales departments and product development groups are blind to customer feedback, which is a gold mine of valuable information. Take, for example, a recent client who was furious with a major software vendor. The latest release of the product had serious memory problems and the vendor's support was ineffective. One of the client's major projects had already been delayed six months and there was no remedy in sight. While the individual was threatening the vendor's support staff with replacing his entire installation with a competitor's product, he was approached by a salesman and asked if he would serve as a reference account for the product!

It is important for businesses to listen to what their customers do not like -- and to show that they have heard them. Problems with a product or a purchase do not necessarily drive customers away. Poorly handled problems do.

Understanding CRM products

The software market is teeming with products that have CRM or relationship management labels or descriptions. Most of these products, however, can be grouped into one of three broad classifications: front-office automation systems, business intelligence tools and Web-based analytic tools. The functionality offered by each class of products is largely complementary, so many organizations actually use products and tools from each class.

Front-office automation systems are those most typically thought of when one mentions CRM. These products take the ERP approach of being everything to everyone, but in the front office (a business area that ERP vendors have been slow to penetrate). Functionality usually includes sales force automation, strong contact management and groupware capabilities, call tracking, call-center automation, service marketing and document management. The products' greatest strength is that they integrate most front-office activities, providing a single, central source of integrated customer data.

The single largest vendor in this space is Siebel Systems, San Mateo, Calif. Other well-established vendors include Vantive and Clarify, both of which are located in San Jose, Calif. For smaller companies that may not need the very expensive, full-blown product suites of a Siebel, Vantive or Clarify, there is a growing niche of mid-market, front-office vendors. These companies -- Saratoga Systems, Campbell, Calif., and SalesLogix, Scottsdale, Ariz., for example -- integrate key front-office activities with scaled-down functionality at a fraction of the cost of their larger cousins.

Front-office systems are excellent at improving the productivity and efficiency of sales teams, marketing departments and support groups. But in this respect, they are still operational systems used to capture and manage customer data, and to automate processes. With few exceptions, they offer little insight into what the customer data means -- information that can be used to better serve the customer. For that, we need business intelligence tools.

Business intelligence tools support the analysis of the data collected by front-office systems, providing an understanding of customer behavior and needs. This analytic functionality, sometimes referred to as analytic CRM, is well served by OLAP products and data mining tools. Profitability analysis, retention analysis, campaign management and customer segmentation are all familiar applications of general business intelligence products.

While most general OLAP and data mining products can be applied to these types of analysis, some business intelligence vendors provide specific analytic CRM functionality and products. During the last year, San Mateo, Calif.-based E.piphany and Menlo Park, Calif.-based Broadbase have led OLAP vendors in the CRM space. However, Hyperion Solutions Corp., Sunnyvale, Calif., is making an aggressive move into this market and is expected to release a number of CRM-specific apps over the next six months. Business Objects, San Jose, Calif., jumped squarely into the CRM ring this spring when it released Set Analyzer, a product that analyzes and manages persistent subsets of data.

In a bold move, Emeryville, Calif.-based Sybase restructured its Business Intelligence Division around CRM. Based on acquired technology, Sybase announced a series of CRM products at its TechWave user conference held in August. The company's Warehouse Studio products provide analytic CRM packaged applications for specific industries, together with appropriate data models for those industries. Whether Sybase can succeed with such an "assembly required" product requiring deep industry-specific knowledge, remains to be seen.

Web-based CRM products (sometimes referred to as Internet relationship management or IRM) apply CRM data gathering and analysis specifically to Web-based customer behavior and e-commerce transactions. While in one respect the Web is just another sales channel for businesses, it is a unique one. Customer behavior can be explicitly tracked to a degree not possible through other channels. Not surprisingly, this data tends to be much more valuable than data gathered through more traditional channels. This is because data capture is automatic and less prone to errors, behavioral data is exceedingly granular and the sampled population is much more complete.

The Web CRM product market is as varied as it is exciting. Some of the leading vendors in this space are Firefly (acquired by Microsoft last April) and NetPerceptions, Eden Prairie, Minn. Both vendors supply products that profile customer preferences and product selection and then compare similar preferences from other customers in order to suggest new content and product choices. Each combines collaborative filtering with data mining algorithms to make suggestions. Another vendor, Cambridge, Mass.-based NetGenesis, provides Web site market basket analysis. By analyzing what is in a customer's shopping cart, and what clicks prompted the selection of each item, businesses get direct feedback on what Web site elements lead to the sale of particular items, and what elements can cause shoppers to abandon a cart with items still in it.

Vignette is another successful Web CRM vendor. The Austin, Texas, company provides agent-based acquisition and retention-focused dynamic content. Vignette believes customer loyalty develops through different stages, and targets specific agent functionality to each customer stage: arriving, anonymous, interested and well known. Finally, New York City-based DoubleClick shares customer data via cookies across all its client Web sites, and uses these customer profiles to drive the dynamic creation of targeted ads. DoubleClick is further strengthening its position as a leader in Web advertising with its recently announced merger with NetGravity, San Mateo, Calif.

Putting the customer first

CRM software alone, whether operational, analytic or Web-based, will not bring a company closer to its customers. Front-
office systems provide a good integrated view of what customers do, while business intelligence tools provide the rich functionality needed to understand why customers behave the way they do. Web-based CRM tools go a step further and actually customize content and advertising around an individual customer's interests.

By themselves, these products will not strengthen a firm's relationship with its customers. That requires people and processes. Once a firm has determined what its customers like and dislike, its products, services and the very way it does business need to be restructured around those preferences. Knowing is not enough to make a firm more customer facing; it must act on what it has learned. If your company's CRM initiative rings with words like "automation," "integration," "data capture" and "shared reporting," and you rarely hear the words "customer," "value-added service," and "likes and dislikes," you have probably laid a good foundation. But you aren't there yet.1

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