Why Customer Intelligence Is a Bright Idea

On the second day of the the recent Forrester Marketing Forum in Los Angeles, one of host Forrester Research's analysts discussed the business value of Customer Intelligence (CI). The keynote by Principal Analyst David Frankland, Know Thy Customer: How Customer Intelligence Becomes A Strategic Weapon, detailed how and why companies should begin to invest in centralizing customer data in order to maximize customer satisfaction and lifetime value.

The keynote addressed three significant questions:

• What is CI?
• What is its role in marketing?
• How can marketers leverage it in their role?

Frankland defined CI as, "The management and analysis of customer data from all sources, used to drive marketing performance and business strategy."

According to research by Andreas Weigend, former chief scientist at Amazon.com, more data was generated in 2009 by individuals than in the entire history of humankind. Frankland suggested that this surge in data could present a huge problem for marketers.

"A lot of firms struggle," he said. "They have data dispersed throughout their entire organization — none of which is tied together. Organizationally they're not set up [for CI]; they're set up by business line, by product. They don't think about the enterprise view of the customer."

Referring to a report published last year, for which Forrester surveyed 300 CI professionals, Frankland said the analysis firm had concluded that "not everyone understands the value of [CI]." Forrester segmented the responders into three different levels of intelligence leveraging:

• Functional: 54 percent of the professionals surveyed use customer data at a very functional level but don't have the budget, people, and respect to be more strategic and more valuable in their respective organizations.
• Marketing: 34 percent were middle-of-the-pack — they were only starting to use CI cross-channel to drive more functions.
• Strategic: Only 12 percent measured the value of CI and used it as a strategic weapon.

Those who did measure CI value told Forrester that CI drives business results. Almost two-thirds said it improved their customer lifetime value. More than three fourths said it improved customer satisfaction.

"If you're not interested in driving customer lifetime value, if you're not interested in satisfying customers, ignore these [statistics]," Frankland said.  

Frankland referenced a study by Larry Selden, professor emeritus at Columbia University, to emphasize what companies stand to gain by leveraging CI. The study found that the bottom 20 percent of customers can drain profits by at least 80 percent, draining the success achieved by the top 20 percent, which can generate an amount of profit equal to 150 percent of what a company eventually nets.

ESPN, Farmer's Insurance Group, and FreshDirect were three companies Frankland singled out for how well they leveraged CI.

[Editors' Note: In the December '09 issue of CRM, the chief executive officer of FreshDirect, Richard Braddock, reveals how gathering and analyzing data has allowed FreshDirect to develop initiatives that answer customers' wants and needs. To read the article, click here.]

When ESPN centralized its data it was able to create a fan value model which ranked its fans in terms of the value they delivered. With that knowledge the company was able to accomplish three things: prioritize new product development based on appeal to high value fans; create ESPN Select to allow advertisers to target based on fan knowledge; and leverage knowledge of cross-product penetration in its Web-site redesign.

Farmer's Insurance Group applied a similar model based on customer lifetime value (CLV). It used the data it collected to predict value based on: value of present relationships; expected stickiness of relationships; and expectation of future business. The company then used their findings to test creative copy on high value customers; to understand why certain storefronts deliver higher quality customers; and to understand the incremental impact of a superior claims experience on CLV.

[Editors' Note: For a closer look at the importance of CLV, see columnist Paul Greenberg's Connect column in the August '09 issue of CRM.]

For marketers interested in leveraging their company's CI campaigns, Frankland offered a blueprint for getting started. Marketers should get to know their firm's CI team; work with CI professionals to understand customer balance sheets; identify where mistakes are being made; and use findings to drive business transformation.

News relevant to the customer relationship management industry is posted several times a day on destinationCRM.com, in addition to the news section Insight that appears every month in the pages of CRM magazine.

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