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McKinsey's CRM Best Practices
Posted Feb 25, 2002
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For companies large and small thinking about using CRM tools to develop better marketing campaigns, management consulting firm McKinsey has some good news: It works. Well-designed CRM-based marketing campaigns in emerging markets are reaping 10 to 60 percent in targeted customer wins -- impressive when compared to the traditional 5 to 20 percent in developed markets -- reports McKinsey.

There's a bevy of real-world successes, too. An Asian mobile-phone operator reduced churn by more than 40 percent by offering a special discount to customers identified by a CRM solution as the most likely to cancel. In East Asia, a bank increased credit card profits by up to $6 million simply by targeting a direct-marketing campaign at high-income customers who were also heavy ATM users. That's because the CRM system discovered that this sort of customer was four times as likely to take up a credit card.

McKinsey says many companies aren't reaping the benefits of the technology. Debunking a few of the surrounding myths, McKinsey says CRM isn't only for the technically savvy, giant companies that have the wherewithal and resources to invest millions scrubbing databases chock full of hundreds of thousands of customers.

Simply put, CRM boils down to having a bunch of hypotheses about the composition of customer segments and a variety of marketing campaigns to test these hypotheses -- it's not about focusing on technology. The six-phase rollout sounds a great deal like a Six Sigma program: collect customer information; conduct analysis; develop campaigns; conduct statistical tests; execute campaigns; track results and refine. Therefore, "a company's first CRM customer database need only be big and accurate enough to support well-thought-out, statistically relevant test campaigns," the report concludes.

With this definition, even a small company in an emerging market can build a database of customer information quickly and begin testing certain campaigns against it. In fact, smaller companies starting from scratch aren't faced with the many data-quality problems of that of their larger counterparts. For instance, a large bank's database was set up to handle nine different gender types for its customers, McKinsey reported.

Large companies, though, have some advantages. A successful CRM project is closely related to the number of pilot campaigns and tests a company can run at a given time, says McKinsey. This means the more human resources a company can throw at a CRM project, the greater the chances of success. Capital One, a U.S credit card issuer, employs around a thousand CRM statisticians who tested 45,000 variables in pilot campaigns; a large bank may have only 20 to 50 CRM specialists, and an emerging company would have far less.

The best part about CRM, says McKinsey, is that greater functionality and improvements in data quality and campaign testing can be added on later. Also, CRM can be rolled out in bite-sized chunks. So what's the final analysis? McKinsey says businesses that pilot CRM in "do it now, fix it later" campaigns enjoy growing market shares -- and, of course, those that don't risk losing customers.

Tom Kaneshige also writes for Line56.com

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