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Predicting Current and Future Customer Demand
Demand and revenue management means more than building sales and profits.
Posted Feb 10, 2003
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Demand and revenue management (DRM) is the ability to predict current and future customer demand at a micro-segment level and align demand generation, sales operations, and supply chain strategies to maximize revenue and profit. The concepts and strategies can't be rolled up into one CRM software package. It will require a platform consisting of data and processes that will merge front- and back-office applications.

AMR Research believes that if companies are to gain enterprisewide success from CRM, they need to focus on the entire business process rather than a siloed application category. Marketing automation applications can certainly help increase demand, but why stop there? What about coordinating information from other front-office and back-office applications to more profitably develop and price new products, better forecast demand, and segment customer based on the value they hold for your products, not by generic demographics. Much like the role of marketing professionals, the concept of demand and revenue management goes well beyond simply generating demand.

Companies deploying CRM need to bring the processes and strategies of DRM into the workflow of their applications. To so, companies and executives alike will be challenged to rethink and retool the traditional business practices they've been using as a guide for years. However, early research in the space shows that those companies applying DRM strategies to how they market, sell, and produce products are better prepared to meet customer needs and are doing so with increased revenue and profit.

So, where can you get started? AMR Research sees that the biggest opportunity and chance of success is in investing in tools and applications that will allow you to integrate data and use it in a more strategic nature than has been seen in the past. DRM requires users to aggregate data about its products, customers, competitors, and market conditions. Analytic use is shifting from operational to strategic in nature. C-level execs are asking for their own views based on what they need to drive an enterprise toward goals they set.

Once this data is aggregated, you can make better use of it by more accurately predicting demand and segmenting your customer base by the value of your customers and the value they have for your products. AMR Research estimates that there is $250B in excess inventory that is written off every year. With that figure in mind, it is easy to see how a clearer picture of market demand can have a dramatic impact on a company's financials.

On the application side of the fence, look to vendors that provide more of a platform than a point application. For example a stand-alone email marketing system won't help you execute on DRM. However, a strategic marketing platform built from marketing process management software will allow you to take an improved forecast and coordinate all marketing efforts across products, divisions, and channels. With all marketing programs now linked, companies can get an understanding how well they are executing and any adjustments that need to be made.

Below are the levels of maturity AMR Research has defined within DRM. In this example we stay with a focus on the marketing process. We see most companies sitting somewhere between Levels I and II. At these stages, they may be achieving success one marketing campaign at a time, but are missing the overall picture and along with it a large chuck of potential revenue.

Level I -- Individual deployments of marketing and pricing applications. These applications run in a siloed environment with little or no integration with back-office applications or even applications used by other marketing departments in separate divisions.

Level II -- Marketing strategies have been aligned with corporate goals and there is some integration to back-office applications to monitor performance of initiatives in correlation to overall business strategies. Also, a strategic marketing platform is in place to tie all marketing activities across divisions and products together.

Level III -- Integration of sales and supply chain data to understand market conditions and respond with campaigns to support needs in market or change in price to control or stimulate demand.

Level IV -- Fully integrated platform composed of data from SC, ERP/OM, CNM, and MPM. Analytics will support decisions on what and how much to make, and will set price levels to maximize profit. Alerting and notification capabilities are available should KPIs on inventory, sell-through rates, and changes in external market conditions such as competitive behavior fall out of range. Role-based dashboards allow all levels to monitor market condition in real-time and see how changes are working in their view of the market.

The larger CRM suites still have a way to go in providing a platform capable of driving CRM activities. Marketing is the major driver in generating demand and a constant sleuth in trying to determine where the market is headed and how to use the 4Ps (product, price, promotion, and placement) to meet its needs. Traditional suite players haven't focused their attention on marketing operations and thus fall short in DRM.

Because the strategies and processes incorporated within DRM pull from and feed into multiple departments and lines of business, so must the team governing the project. Marketing must understand the effects of its activities on sales, sales effect on service, and so on. The first step in embracing DRM is to analyze current business processes involving the customer and make sure they support the goals of each department involved as well as align with the strategic objectives of the enterprise.

CRM promised to help companies establish better relationships with customers. In many cases this has been achieved, albeit on a departmental level. In business as in life relationships are built on the sharing of information. A platform built from DRM strategies can be used to develop products the market needs, better forecast demand for those products, and at the end of the day determine which relationships could and should be developed.

About the Author:
Kevin Scott is a senior research analyst, customer management service for AMR Research. Scott's research focuses on companies' utilization of e-business applications to enable marketing and other demand and revenue management strategies. He is also responsible for monitoring industry trends and developments within this market. His coverage includes marketing automation applications, analytics, revenue management, and customer data management.

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