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Customer Relationship Management Can Help Many Businesses Customer relationship management (CRM) is one of the hottest business trends to emerge in years, and with good reason. The very notion of businesses managing their relationships with customers makes so much sense, it borders on the simplistic. To some extent, companies have always tried to do this, but new technologies developed in recent years offer options that never existed before. There are two ironclad arguments for companies to adopt CRM programs. First, study after study has demonstrated that it is much more expensive-five to 10 times more-to recruit a new customer than to do business with an existing one. Second, customer loyalty has become an increasingly scarce commodity, thanks at least in part to the global competition the Internet makes possible. Today’s CRM programs tend to be elaborate technology solutions. If not managed properly and aligned with a company’s basic strategic objectives, CRM systems can become an end unto themselves-and a massive black hole for capital resources. At its core, CRM boils down to two basic propositions: knowing your customers and targeting them with consistent and appropriate communications. When a CRM program is well designed and implemented, and it can provide substantial benefits in three areas: cost savings, revenue enhancement and strategic impact. Annual sales increases of up to 10 percent per employee due to improved productivity are not uncommon in the first three years of a CRM program. Win rates improve, since better information supports earlier disengagement from unlikely or unfavorable deals. The improved customer knowledge CRM enables can result in less discounting and increased profit margins.
Identify which functions should be automated. This can be done through a CRM audit that lists the business functions that need to be automated and the technology required. This should be a discriminating process. Automating an inefficient business function, for example, will not make it efficient. Rely on the people most closely involved with each function in performing this audit. Get top management behind the effort. CRM initiatives with support from the CEO have a much greater likelihood of being successful. Enlist that support by documenting and demonstrating the benefits CRM can provide. Choose partners and technology systems carefully. There are hundreds of vendors in the CRM marketplace. Make sure you choose the one that has the right technology to meet your company’s needs. Make equally sure that the vendor’s personnel have the necessary experience and expertise. Make CRM an enterprise-wide initiative. Involve users early in the process to make sure the system addresses their needs. Prototype the system to support a "pain-free" rollout. Provide users with appropriate training, motivation and positive reinforcement.
NO MAGIC BULLET CRM is not a magic bullet to solve all a company’s marketing challenges in the new world of global commerce. It can, however, be an important addition to marketers’ existing portfolio of strategies and techniques.Good marketing requires a combination of creativity and statistical competence-a marriage of art and science, so to speak. Advances in technology such as CRM systems have opened up many new opportunities to marketers. In most cases, however, CRM alone is not enough. In order to enable the human, creative side of the art-and-science equation, marketers need a reliable way to predict customer reactions to various marketing programs across all channels. Successful customer management involves changing customer behavior. Companies incite that change by taking actions-both mass actions that affect all their customers and differential actions that affect only some. In order to choose the appropriate action to achieve a particular objective, marketers need to know how each customer will react to each possible action, and that is what predictive behavior modeling is all about. Customer behavior modeling can play an important role in an integrated approach to marketing that encompasses risk, retention, revenue and response modeling.
Retention. This starts with a determination of how likely each customer is to defect over a given period of time, but perhaps more important is the likely effect of various actions the company might take to retain that customer. It makes no sense to spend money on an action that will not have a positive effect on retention. Revenue. Customers must be managed in a way that maximizes revenue contribution to the organization. Achieving that requires an understanding of historical revenue patterns, likely future revenue, net revenue and margin. More importantly, it requires a reliable means of projecting the effect different actions are likely to have on the value of different customers. Response modeling. Every time a company considers a direct communication or other management decision affecting a customer, it should first create a model of the likely outcome of that action. A simple example is, "Should we be sending this piece of mail?" It will certainly have a cost, but it may or may not have an effect. If it does have an effect, will it be positive or negative? Is one direct mail piece more likely than another to have the desired effect? Which channel is most appropriate for this communication?
BROADER SOLUTIONS Predictive behavior modeling integrates with other aspects and components of broader marketing solutions. It helps marketers understand customers, positioning the organization to maximize its likely return from each customer.Data warehouses allow companies to store and manage data about customer characteristics and behaviors, but if that data just sits in the warehouse, it’s a wasted investment. Behavior modeling lets companies leverage their investments in data warehousing by putting that data to work improving the value contribution of existing and prospective customers. Predictive modeling adds an analytical capability to CRM that greatly increases its value and usefulness. Operational CRM systems let companies send and receive various communications to and from each customer. Behavior modeling helps companies "set the switches" correctly to deliver ROI from investments in CRM. The type of information provided by predictive marketing software can be very useful for strategic planning. For example, customer modeling can alert a company to changes in the behavior of its customer base long before they might otherwise become apparent. Applied to product development, behavior modeling lets companies aggregate previous experience with components being used from existing products to predict customer reaction to new products. It can also be used to make scientific trials and product testing more effective. At many companies, marketing decisions are based on assumptions about the organization’s customer base that are simply wrong or at least outdated. Predictive modeling lets marketers explore, segment, profile and query their data interactively and visually. Subsequent identification of misinformation about their customers can lead to radically different strategies for the entire enterprise.
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