Start with people, best practices, and process, and enable these with evolving technology.
Posted Oct 1, 2005
Times have changed for CRM and its relationship with marketing, the key activity in a company's value chain that can be impacted by a CRM initiative. Emerging new media and channels and dramatic upgrades in technology have all augmented marketing CRM's potential contribution to a company's competitive positioning. Harnessing marketing CRM, however, to improve ongoing customer profitability has become significantly more complex and challenging.
B2C executives wishing to pursue CRM to reinforce competitive advantage face a new set of marketing CRM challenges, led by the need for analytic applications. By addressing these challenges, marketing executives have a much better chance of realizing the true benefits of the new CRM paradigm. But to maximize their efforts and resources, they should first examine the paradigm shift that has taken place.
Turning CRM On Its Head
CRM is a ubiquitous acronym that means different things to different people. To many companies and senior executives in the 1990s and early 2000s, customer relationship management was thought to be achievable by integrating CRM applications across the enterprise. Business journals and books are filled with cases of companies that made multimillion-dollar investments in CRM applications and integration services and ended up with very little in return. Some CRM investments actually generated negative returns because they created chaos within the sales, marketing, and service operations. While some companies accepted the philosophy of customer data centralization, many organizations proved unable to adjust their processes or their mindsets. What many companies learned during this period was that CRM technology alone could not fulfill the promise of CRM to create more profitable relationships with customers.
Establishing an acceptable definition of CRM is an essential first step in understanding how to implement a CRM initiative. Research firm Gartner offers a definition of CRM that is commonly accepted:
"A business strategy that maximizes profitability, revenue and customer satisfaction by organizing around customer segments, fostering behavior that satisfies customers, and implementing customer-centric processes."
Philip Bligh and Douglas Turk, authors of CRM Unplugged, add to Gartner's definition by emphasizing the need for companies to focus CRM on areas that are sources of competitive advantage versus simply improving operational effectiveness. This added philosophical dimension ensures that CRM investment decisions are consistent with the company's general competitive strategy. Thus, the focus of CRM investments is less in areas that create one-time operating effectiveness improvements and more in areas that contribute to the company's competitive advantage. Bligh & Turk's research suggests that many CRM failures in the past resulted from a dislocation between CRM investments and areas that contribute to sustainable competitive advantage.
Zeroing in on Your Target Analytically
Here is an example to illustrate the enormous impact of analytic applications that create audience selection criteria.
Last fall a series of predictive models were developed for a midsize specialty retailer to drive audience selection within the constraints of the company's holiday direct mail budget--$10 million. Customers were scored based on expected response propensity, seasonality, and product category affinities. Multiple treatments were created to ensure segment relevancy. Control groups were assigned to measure the incremental revenue and gross margin generated by the predictive models. The results of this effort were spectacular: Incremental sales per customer rose during the holiday period rose 12 percent, and for every dollar invested in the predictive models $14 of revenue and $8 of profit were generated.
Today, an increasing share of senior executives recognize that CRM investments need to be made in areas that directly impact customer revenue, customer profitability and customer satisfaction in ways that reinforce the company's competitive positioning. Moreover, most senior executives have discovered that the challenge of CRM is less about software and technology and more about the skills of their people, customer intelligence gleamed from multiple data sources, and the ability to disseminate this customer intelligence to drive interactions with customers at all touch points. A paradigm shift is occurring today in how companies pursue CRM.
As recognition grows that CRM is a strategic corporate initiative at the same time that new technologies are emerging to enable better customer management, companies will struggle to assemble an effective marketing CRM platform. The platform starts with people, best practices, and process, and is enabled by evolving technology. Whereas CRM was once perceived to be a technology initiative, most companies now understand that the mother lode benefit is created by analytic cultures that focus on the capture, transformation and dissemination of customer data and intelligence. Moreover, executives realize that their company's competitive position vis-a-vis its customers and financial performance will deteriorate if it is unable to adapt.
About the Author
David Ehrenthal is vice president of the technology services group at PreVision Marketing, a multichannel relationship marketing agency helping brands drive high-performing acquisition, upgrade, and retention programs through the deepest possible behavioral insights. He can be reached at: DEhrenthal@PreVisionMarketing.com, and at (781) 259-5142.
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