The Shortcut to ROI

For a while it looked as if the billions of dollars spent on CRM had been thrown into a bottomless pit from which no clear payback would emerge. But at last, many companies have found their way toward payback. What these companies are doing can be summarized in three basic steps. And the good news is, there's still time to take the steps in 2003. Step One: Go back to the original CRM premise of becoming more customer-centric. When cost-cutting is viewed as a goal in itself, it conflicts with customer satisfaction; yet, a renewed customer-focus often yields cost-savings. Step Two: Don't wait until your entire organization has reached some sort of CRM nirvana, where everything is hooked up to everything else. We live in a dynamic world of mergers and acquisitions, new regulations, and evolving customer behavior. Companies that act today to impact whatever they can impact today will come out far ahead of those that wait for an imaginary completion that will never be achieved. Step Three: Take advantage of the technological advances that have occurred over the past couple years to make better use of all that data collected in your CRM databases. Some exciting work is being done in the areas of predictive modeling and optimization, in particular. Companies that follow this focused approach to CRM are finding they can achieve quick, measurable profit improvement. They are even showing payback within the same fiscal year--something old-school CRM could never do. As financial services companies have been among the first and largest spenders on CRM technology, their experience provides lessons for other industries. At the end of 2002, in fact, financial services companies in the United States had spent an estimated $3 billion on CRM for the retail banking sector alone. Yet most of these companies would admit they have not achieved their original goals of building loyal consumer relationships and increasing revenues. Or, at best, they hope they've moved in this direction, but are far from being able to measure their progress. Today however, an increasing number of companies are taking the three steps listed above. The lessons apply to any company that has invested in CRM and that initiates contact with its customers for collections or sales. Take, for example, the experiences of credit card issuers. Whether utility, mortgage, automotive finance, retail finance, or credit card--most companies actually have very profitable relationships with a portion of their customers who, in traditional credit-scoring terms, are considered high risk. Due to the high interest rates and occasional late-fees these customers pay, they can be very profitable, indeed. Without being able to predict the behavior of each consumer individually, most companies feel it's safer to quickly call and collect from everyone who is late with a payment. By calling everyone, they are trying to prevent any of these customers from slipping into a later stage of delinquency. There are two problems with calling everyone: First, it is expensive in terms of agent resources. Second, there is a portion of "profitable but late-paying" customers for whom a collections call is embarrassing and offensive--so offensive, in fact, that they close their account. New, action-specific modeling technology, however, predicts which accounts will pay even without a call. For one credit card company's early-stage delinquencies, fully one third would pay even without a collections call. By not calling those likely to pay anyway, this company measurably and significantly reduced attrition. Keeping each customer longer is one of the most important goals of CRM. What's the point of carefully nurturing a profitable relationship through all customer touch points, only to destroy it with an unnecessary collection call? Companies generally estimate that replacing each customer costs more than $100. This counts only the cost of actually replacing the customer--not the fact that loyal and long-term customers generate higher revenues. The dollar return on keeping a customer has been documented repeatedly. According to Bain & Company, for example, a 5 percent increase in retention yields profit increases of 40 percent to 95 percent, depending on the industry. By incorporating technological advances, today's more progressive companies are finding that making customers happy and reducing costs can be compatible goals. That's because treating each customer as an individual tends to focus spending to the right areas. By knowing whom not to call, forward-thinking companies reduce attrition rates and make call center agents more productive at the same time. They take advantage of data stored in CRM databases to produce a measurable result that flows straight to the bottom line. About the Author Lois Brown is vice president of marketing for Austin Logistics. Founded in 1992, the company provides call center productivity software and custom modeling services to America's largest financial services companies.