Relationship Marketing
CRM Building
3. Toward strategic planning and
2.3 Turning Customers Into AssetsAssets
Key Issue: What are the keys to developing a successful strategy to turn customers into assets?
2.3.1 Four CRM Strategies
Tactical Guideline: Understanding the four strategies that make CRM work will help an enterprise plan and prioritize its investments accordingly, which in turn will improve the enterprise’s prospects for CRM success.
The following four strategies help make CRM work:
• Extend the depth and breadth of relationships to get a larger share of the customer relationship. Assume that the enterprise is underrepresented in the customer’s thinking, and that it can enlarge its “fair share” of the relationship.
• Reduce transaction barriers and costs. Move customers and transactions from high-cost channels to low-cost ones, such as the Web.
• Reinforce the brand. CRM fulfills the promise created around the brand. This strategy emphasizes the handoff from branding media (for example, television) to more interactive media (for example, the call center).
• Create customer satisfaction and loyalty. The goal is happier customers. An enterprise needs to approach every interaction with the customer as an opportunity to create customer satisfaction.
Because no single strategy works for everyone, an enterprise shouldn’t limit itself to just one. Although an enterprise should work on all four strategies simultaneously, one strategy will end up dominating, based on the goals and culture of the enterprise.
2.3.2 A Six-Step Methodology for Developing a CRM Strategy CRM strategy guides how an enterprise turns customers into assets, beginning with an understanding of current customers and how they relate to the market. Because fewer than 15 percent of enterprises understand this relationship, most skip this vital planning step.
Enterprises achieve benefits from CRM when they capture and analyze customer insight, and apply that information to increase the quality of communication and deliver relevant value-added services. Technology and the Internet economy increase the opportunity — and expense — of understanding customer needs. Therefore, enterprises need to know what’s possible and manage their available funds to optimize benefits.
An enterprise should consider the following best practices when aligning its CRM strategy:
• Engage the CEO, business and technology strategists, and key executives from functions such as marketing, human resources, sales and customer service.
• Define CRM as an enterprise-level initiative (although implementation of the strategy may start at the departmental level).
• Ensure that the enterprise and marketing strategy are in place, and that target customers have been well-defined.
• Name a CRM executive sponsor and define his or her role. If this sponsor leaves the enterprise, appoint another quickly.
• Use a methodology for CRM strategy development.
Because CRM is an evolving, creative science, an enterprise should use the following six-step methodology to develop a CRM strategy:
• Audit the enterprise’s current position with customers, and in the market.
• Segment the customer base, and identify target segments.
• Set customer objectives (such acquisition, development or retention) for each market objective.
• Define metrics for monitoring the execution and evolution of the strategy.
• Outline, by segment, the strategy to customize products, pricing, communication and channels — and to manage customer service and contacts — in order to create the desired customer value proposition and customer experience.
• Specify the required customer capabilities and infrastructure (such as people, IT and data).
Action Item: Use Gartner’s six-step methodology as a starting point when developing a CRM strategy, and customize and enhance this methodology to meet the specific needs of the enterprise.
2.3.3 Focus on the Customer
Strategic Planning Assumption: By 2006, as leading-edge marketing organizations increasingly focus on customer growth strategies and more-mainstream ones focus on customer retention and extension strategies, the relationship marketing process will involve multiple points of contact (0.8 probability).
Adopting a customer-centric CRM cycle requires enterprises to implement the supporting infrastructure that each element requires (see Figure 2-4). This involves new IT systems (with the IS organization’s cooperation) as well as changes in organizational processes and attitudes.
Enterprises must therefore determine their technological readiness (for example, in terms of the automation of
marketing processes, and of internal skills and capabilities) and their organizational readiness (for example, business objectives and organizational commitment).
The movement to CRM occurs in two key areas. The first is a focus on understanding the customer’s relationship to the enterprise. This attitude is reflected in more-responsive technology and marketing processes, and in a willingness to integrate the customer more fully into the enterprise.
This can be achieved by integrating the multiple channels that marketing uses to deal with the customer.
The second area for development is to extend customer understanding beyond the marketing organization and into other groups within the enterprise, such as the supply chain for mass customization or customer service for cross-selling opportunities.
Action Item: Examine the enterprise’s points of customer contact, and determine where they may be suboptimal from the customer’s perspective.
Figure 2-4: The New CRM Cycle
Source: Gartner
2.3.4 Customer Data Integration Enterprises and vendors are starting to talk about customer data integration (CDI) as an established market. However, many enterprises aren’t certain about exactly what it means or includes.
CDI is the combination of technology, software, processes and services required to achieve a single, accurate and complete view of the customer across multiple sources of customer data (internal and external), databases and business lines. Successful CDI provides the capability to instantly recognize customers and have their relevant information dynamically available — regardless of the interaction touchpoint. CDI forms the foundation for all other customer-centric initiatives, including CRM, as well as integration with enterprise resource planning implementations across departments and enterprises.
In some ways, CDI represents nothing new — especially in the area of CRM known as database marketing. What’s new is the integration of all these capabilities into vendor solutions, providing real ROI benefits by improving the underlying quality of the database. In addition, the CDI market’s emphasis on quality customer data also helps advance CRM.
2.3.5 Influencing the Customer Process
Strategic Planning Assumption: By 2006, in Global 1,000 enterprises, 85 percent of business-to-business relationships — and 75 percent of business-to-consumer relationships — will involve three or more channels (0.8 probability).
When evaluating the effectiveness of customer interactions, enterprises traditionally focused on where the purchase transaction occurred. However, customers pass through many steps before and after this transaction (see Figure 2-5). It is only within the context of these steps that a customer makes a purchase. Selecting the point of transaction becomes a matter of convenience.
Complicating things further, customers move across channels as they make their way through the process. As they move between different channel touchpoints, their weakest channel interaction will most strongly influence their overall impressions of the enterprise. Therefore, an enterprise must provide a consistent level of service across all channels, and make historical data on a customer available at every channel so that he or she won’t be treated as a stranger during each new interaction.
Figure 2-5: The Customer Experience Across Multiple Channels
Source: Gartner
Enterprise Perspective
Mail Web Phone
Web
Customer Perspective
1. Establish need 2. Find sources 3. Establish trust 4. Determine value 5. Select product 6. Make transaction 7. Services 8. Upgrade/repeat
Buying Process Communication Medium Retail Mail Fax E-mail Web Phone
Customer Path
Communication Medium Customer
Path
Reality Gap
Retail 1. Establish need
2. Find sources 3. Establish trust 4. Determine value 5. Select product 6. Make transaction 7. Services 8. Upgrade/repeat
Buying Process
Action Item: Focus on influencing the customer process consistently — at all stages and in all channels.
2.3.6 Strategies for Harvesting the Value of Customer Information In many respects, privacy is a state of mind, depending on the customer’s view of its relationship with the enterprise. Extensive data collection and analyses of customers won’t automatically be seen privacy abuse — and complying with data privacy legislation won’t necessarily prevent enterprises from being perceived as abusing privacy.
Permission-based marketing may not be the universal remedy to privacy, either, because it:
• Can make interactions less effective
• Places the onus on the customer to understand fully what he or she does and doesn’t want to receive To avoid jeopardizing the customer relationship, enterprises need to understand the four key strategies for harvesting the value of customer information (see Figure 2-6):
• Zero-gain compliance
• Mass exploitation
• Targeted exploitation
• Trusted advisor
Enterprises must make privacy strategy choices after considering the business case and the characteristics of the desired customer — bearing in mind that a “trusted advisor” relationship is difficult to achieve once a brand is associated with the abuse of customer privacy. In other words, for a given customer-enterprise relationship, the strategies are mutually exclusive. However, in theory, an enterprise could pursue different strategies in different markets.
2.3.6.1 Zero-Gain Compliance
This strategy happens when customers deny an enterprise permission to use data, and the enterprise scrupulously observes customer permissions (as most law-abiding businesses do, especially after a little regulatory attention).
Both customer and enterprise face downsides as a result (for example, lack of attention for the customer, and added data management costs for the enterprise) and neither gets much in return.
Figure 2-6: Four Approaches to Harvesting Customer Information Value
Source: Gartner
Low
Low High
High
Long-term customer
revenue potential
Trusted advisor
Zero-gain compliance Mass
exploitation Targeted exploitation
Customer concern for privacy
This is the default strategy for dealing with suspicious privacy fundamentalists or with privacy pragmatists who’ve been cheated by an enterprise. An enterprise in this position must minimize its data acquisition and management costs because revenue opportunities already have been reduced. Enterprises should avoid this strategy whenever possible.
2.3.6.2 Mass Exploitation
Spamming — one example of mass exploitation — is:
• Inherently oriented toward transactions, rather than relationships
• Aimed at those unconcerned about privacy
• Reliant on low overhead and large numbers of contacts, to make even extremely low rates of customer response profitable
The regulatory requirements for customer data and preference management ultimately make this strategy highly profitable only for unscrupulous businesses. More-legitimate enterprises will find that, over time, spamming tends to push the vendor into the zero-gain compliance scenario as privacy-sensitive customers react to the exploitation approach by denying permission to use their data.
2.3.6.3 Targeted Exploitation
Like mass exploitation, targeted exploitation assumes a passive, privacy-insensitive customer — whether unconcerned or a pragmatist — whose information can be exploited heavily by the enterprise and third parties involved with the enterprise. Financial-services vendors that depend on opt-out laws to enable widespread sharing of customer information with an unlimited range of third parties practice targeted exploitation.
Although this approach is more relationship-oriented than mass exploitation, the relationship is one-way — the enterprise isn’t really listening to the customer. If the customer becomes privacy-sensitive and has a choice, the scenario may quickly convert to zero-gain compliance.
2.3.6.4 Trusted Advisor
The trusted advisor strategy has a long-term, two-way relationship orientation. Enterprises assume customers are informed — and if they aren’t, the enterprise helps inform them. The enterprise aims to be the preferred choice for high-revenue-potential, privacy-sensitive, informed buyers.
Trust and explicit permissions empower the trusted advisor to take proactive steps on behalf of the customer (for example, suggesting new partners, products or services to complement the current relationship). In this model, privacy is part of a bundle of products and services, and enables a larger commercial relationship.
Although its maintenance requires considerable enterprise attention, this relationship delivers high value to all involved.
The enterprise incurs costs similar to those of other compliant approaches. However, it gains more revenue opportunities over a longer period.
Enterprises will find it easier to take this approach from the start, rather than converting to it from a zero-gain-compliance, mass-exploitation or targeted-exploitation approach. Trust takes time to develop, and a history of privacy insensitivity can prove difficult to overcome — especially when the customer is a privacy-sensitive one.
2.3.7 Aligning CRM Decisions With Enterprise Goals
Strategic Planning Assumption: Through 2006, fewer than 15 percent of executives will clearly articulate how selected CRM applications will help them attain specific enterprise goals, such as revenue growth, profit growth, market share or earnings per share (0.8 probability).
CRM initiatives often lack alignment among enterprise strategy, business processes and applications of technology. This lack of alignment usually leads to project failure. Although senior executives can espouse enterprise strategies, those making process-transforming technology decisions are often unable to articulate which software applications will best support the enterprise’s goals.
Enterprises also end up with less-than-optimal results when they choose technologies primarily based on how well they support departmental needs. CRM winners — business architects who understand the important role technology plays in transforming business processes — know which strategies support enterprise goals, and which business processes they must optimize to support the strategy.
Action Item: Prioritize application functionality investments based on their ability to support enterprise strategy.
2.3.8 The Future of CRM
Strategic Planning Assumption: By 2006, although 15 percent of CRM initiatives will include broader business processes that extend outside of traditional organizational and enterprise boundaries, fewer than a half-dozen solutions will adequately address this need (0.7 probability).
The future of CRM looks like a complex machine. The various CRM systems required and used by all organizations in the extended enterprise will combine into one collaborative environment, in which:
• Information flows freely.
• Customers can receive the same high level of sales and service, regardless of touchpoint or partner.
• The enterprise has a complex hierarchy of strategy, supported by metrics and tactics — which are, in turn, supported by departments and their operational systems.
This will lead to the full integration of analytics, operations and infrastructure. Although this vision won’t occur overnight, it will occur, regardless of business model.
Industries and enterprises need to determine how to link their various systems.
Action Item: Prepare for the need for the enterprise to integrate and collaborate its broader network of partners and affiliates.
2.4 Recommendations
• Evaluate the enterprise’s market position with regard to customer requirements and the competition. Define a valued, differentiated customer proposition based on the enterprise’s resources and capabilities.
• Don’t ignore the brand in the age of CRM.
• Value the potential of the customer base, not just the profits it now delivers. Build a customer asset portfolio.
• Establish the motivating factors for customer loyalty, and determine where to excel and what opportunities exist to cut costs.
• Understand what technology enables enterprises to do.
• Build a process for evolving the strategy from operational feedback so that it provides a business integration point in a changing environment
B
usiness-to-consumer (B2C) customer relationship management (CRM) is all about creating business value and improving customer relationships. The most-successful B2C CRM initiatives result from taking the time to develop a CRM strategy that reflects a strong customer vision, and supports the enterprise’s business goals and objectives.Functionality remains important in B2C CRM technology decisions — but so do architecture, integration and flexibility. Leading B2C enterprises will buy leading functionality, integrate it with their in-place architecture and systems, and use it to develop differentiating processes that create sources of competitive advantage.
Proving value will be another area where leaders will differentiate themselves. In the early days of CRM, enterprises gave little thought to measuring CRM efforts — much less what impact they had on profitability. Many enterprises simply assumed there would be returns. Today, enterprises can’t afford to make that assumption, and must prove the benefits and value that they will derive from such efforts — and then prove they’re actually getting them.
Translating objectives into metrics and profitability isn’t easy, and it will remain a challenge for most enterprises using CRM. Through 2007, more than 85 percent of firms will remain unable to link CRM initiatives to profitability (0.8 probability). However, leading enterprises are proving that it can be done.
The following Key Issues frame the analysis in this chapter:
• What are the critical B2C CRM business drivers and strategies, and the resulting benefits?
• What technologies and architectures are critical for B2C CRM success?
• How can enterprises select the most-appropriate B2C CRM solution and partner?