These days there is so much ambient noise around the subject of CRM, so many extravagant claims being made, so many competing doctrines being spread, that its actual meaning is obscured by a veil of rhetoric. Is CRM a technology solution - or a business process? A marketing or a service strategy? A reform movement - or a short-lived fad?
This ambiguity was apparent at a couple of CRM workshops held last year: one a user conference for a retail marketing software tool called MarketWorks, developed by Montreal, Quebec-based STS Systems; the other a two-day event in Toronto, Ontario staged by Insight Information.
At the STS conference, the prevalent concern was how to manipulate data to improve segmentation. Retailers traded war stories about the use of their customer databases to drive out targeted promotions. One retailer showed how they were able to secure additional funding for direct marketing based on a "rain barrel analysis" of past spending activity; another described how it incorporates magazine bind-ins, bag stuffers, and Web site registrations to accumulate data; and STS weighed in on the use of RFM as a ranking method.
The emphasis was quite different at the Insight seminar. There the case studies spilled beyond the marketing perimeter into front-line service. For example, IOF credited its deployment of the Siebel CRM system for dramatically improving member satisfaction, due to one-call resolution of inquiries and problems. The North Shore Credit Union found that its Pivotal CRM system enabled it to gain insight into customer preferences by building detailed financial profiles of its top members. And Bell Mobility explained how it is building a dynamic recommendation engine using the E.piphany platform to make the best offer to customers out of its many possible rate plan combinations.
Despite these different perspectives - one focused on outbound activities, the other on inbound - a unifying theme ran through all of the presentations: the differential treatment of customers based on actual and potential value.
Business Week has called this trend of stratifying customers "the new consumer apartheid" (Oct.23, 2000), complaining that: "Increasingly, companies have made a deliberate decision to give some people skimpy service because that's all their business is worth. Call it the dark side of the technology boom, where marketers can amass a mountain of data that gives them an almost Orwellian view of each buyer."
While service differentiation may cause grumbling (and some degree of paranoia) in the general population, especially amongst nomadic consumers who choose not to have any strong allegiances, the truth is that it is an economic necessity. Without knowing which customers account for the bulk of profits, companies end up trying to satisfy everyone while pleasing no one. But once they have identified their core group of loyalists, they can give them more attention. More importantly, they can invite their collaboration early in the product development cycle, gaining their input into the features and benefits that matter to them most.
Consumers should welcome that approach according to the findings of a market survey conducted last year by London, Ontario-based Acumen Research. One of the main conclusions of the study, that reward programs rank dead last as a means of sustaining loyalty, won a lot of headlines in the trade press at the time. What got missed in the coverage was the main reason for abandonment: failure to treat the customer as an individual.
The failure to valuate customers results in a failure to value them. The hard part is to determine what makes a valuable customer. A strict profitability calculation ignores potential future earnings - and past loyalty. So a composite measure is needed that encompasses history, earnings and the cost to serve.
Once a customer base has been stratified into value tiers, the next step is to find those sub-groups with common characteristics and shared attitudes. From there a cross-channel strategy can be mapped out, guided by an investment plan that maximizes segment growth and retention. That strategy should be grounded in the following precepts:
- Manage Around the Mean: Value typically manifests itself as a Bell curve in most portfolios with 15-20% of the customer base lying at the tail ends. The real challenge is managing around the mean - where 60-70% of customers are concentrated - inventing compelling offers to propel them across the median dividing line.
- Define Rules: The job of marketers today is as much about rule making as it is about brand positioning and messaging - maybe more so. Those rules codify the treatment of customers at all touchpoints and serve to modulate the contact mix and frequency. In a complex multi-channel environment, they are a practical necessity to support perpetual, "always on" service where customers must be instantly informed of their entitlements.
- Safeguard Trust: Even a momentary breach of trust can incite customers to withhold their opt-in consent and insulate themselves from further contact. To measure the level of trust, customer feedback should be regularly solicited and acted upon. Establishing an open reciprocal dialogue, where loyalty drivers can be identified, preferences revealed, issues aired and temperature checks taken, builds an emotional bond where both parties have an equal and vested stake in success.
- Track the Lifecycle: While knowing customer value is critical, it may be just as important to measure the variability and the velocity of the relationship over time - in other words, to follow its trajectory through the lifecycle. At critical moments of truth along the way, marketers can intercede with appropriate actions to maintain full momentum.
- Stretch the Measurement Horizon: Marketers have to establish segment scorecards reflecting the asset value of the customer portfolio. Success should be based on longitudinal gains in Key Behavioural Indicators like segment growth, decline and retention.
If companies can agree on these guiding principles, the discussion around CRM will sharpen in focus, where instead of fussing about technology, or segmentation methods, or privacy anxiety, the attention can shift to what really matters: treating the best customers with the respect they deserve. That's not apartheid - it's simply good manners.
