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C U S T O M E R R E L A T I O N S H I P M A N A G E M E N T

Lancôme Canada

SIMIUC Raluca

TEIXEIRA Diogo

LAU Joel

STAMATIAN Andrei

BALMES Cyrille

ALEXE Simone

April 2004

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Project Proposal

We will try to address two areas of concern:1) is a CRM program fit for Lancome and 2) how

should an optimal CRM program be designed and evaluated.

Starting with an overview of the CRM development to-date, we will try to identify best practice

in different industries and bring out the key learning points in terms of objectives, execution and

evaluation.

We will look at the pivotal question Lancome Canada is trying to solve and challenge the fit of

the CRM solution into that context. We will further diagnose the CRM proposal, benchmark it

against a concept one (based on our studies and best practices) and try to come up with specific

recommendations.

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Table of Content

1. CRM overview

1.1 Overview of CRM at present

1.2 Best practice / case studies

2. Building the CRM Case for Lancome Canada

2.1 Challenging assumptions of the CRM proposal for Lancome in Canada

3. Objectives

3.1 Translating business goals in CRM objectives

3.2 Alignment of CRM strategy with business objectives

4. Execution

4.1 Segmentation

4.2 Implementation: targeting / discriminating policies / customization

4.3 Integration

4.4 Resources & capabilities

5. Evaluation

5.1 Measures of success

5.2 ROI

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1. CRM Overview

1.1 Overview of CRM at present

CRM is the new trend in marketing and it looks like it is here to stay. There are many companies that are

currently trying to implement CRM and part of the challenge is that they do not all agree on what CRM

is. Some companies view CRM to be a highly evolved form of database marketing that takes advantage of

software technology advances to use information accumulated about a consumer to create a more

effective direct-marketing effort. Others would argue that CRM represents much more than that because it

establishes a unique connection between the company and the customer and it valorizes the lifetime value

of the customer. However, there are also companies that base their CRM decisions on ROI’s with 3 to 5

years horizons, which is incompatible with the lifetime value concept.

The companies’ confusion with CRM is perpetuated by the multitude of providers of CRM, who try to

define CRM depending on the service they have available to sell. The special report in the July 2003 CFO

magazine lists a Gartner survey on the companies’ perceived efficiency of as many as 14 CRM tools!1

This complexity makes some companies to treat CRM with suspicion. Additionally, while the absolute

level of business improvement may be measurable, it is considerably more difficult to measure the

incremental profitability due to CRM alone. Compounding this effect with the intrinsically subjective

estimates offered by the providers of CRM further increases the difficulty of deciding on the adoption of

CRM.

However, the interest for CRM remains high because of the CRM success stories is several companies

from different industries. While achieving the desired ROI seems to remain elusive at best, there are a

growing number of companies where CRM is currently a recognized business driver or at least enabler.

Some companies even argue that they can objectively measure the incremental benefit from adoption

CRM. Saab for example states: “…those reached by dealers [under the CRM program] bought Saabs 30%

of the time. Those that weren’t purchased Saabs only 5.6% of the time.”2 Studying best practice

applications of CRM in more detail should provide the decision maker with further useful information;

therefore we will investigate a few examples in the following case studies.

1 “Buyer Be Aware”, July 2003, CFO magazine.

2 “Another CRM Saab story”, November 2003 issue of www.directmag.com

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1.2 CRM Case studies

CRM is mainly used for increasing consumption / revenues from existing customer and reducing the

promotion cost, thus the levers actioned upon are: increase purchase and loyalty. Cross-selling is recently

emphasized by FMCGs and consumer electronics.

Nokia and Sony have notably high profile initiatives targeted at cross-selling, building loyalty and

supporting their new launches. “My Sonny” objective is to bridge the purchase and customer service for

consumer electronics products and increase customer life-time value. They target all their current users

and assign them an individual code that provides them access to services and programs. They do account

for savings in customer service but do not specifically evaluate ROI for the program.

Dior had been studied CRM Best practice in the industry for one year and decided to evaluate the benefit

of CRM for their Brand since such initiatives are present in Japan and are a success.

The objectives for the program at Dior are the following: increase purchase basket – cross-selling,

increase customer loyalty and substitute GWP. The program right now has no specific customer

segmentation and it targets every Dior buyer and let the customers self-select on the program. The

evaluation of the program will focus on the actual extra cash generated by the program on test site. In the

future, if the project is successful, Dior plan to develop a cross-country initiative to share customer data

and better target the product offering.

The online retailer, BlueFly draw its competitive advantage from an efficient database that could give

meaningful analysis in maximising operating profits. Comparing to a traditional brick-and-mortar retail

stores, BlueFly does not allow customers to “feel” their products before making a purchase. Consequently

the customer representatives at BlueFly are trained to provide the best customer service possible ranging

from product description to fashion advice so that customers are comfortable in buying the products

without actually trying them on. The company puts customers into buckets according to their average

purchase amount per order in a designated period of time. Subsequently they will send out postcards and

emails customized to the specific segments. Depending on their inventory level, they will selectively

push their merchandise targeted to segments that fall in the relevant price-range. As an effort to

constantly improve its CRM system, the company will send different versions of emails to target on

specific segment. Afterwards they will measure the effectiveness of those emails by tracing the

clicks/paths potential customers made in reaching the final product pages.

The primary objectives of their CRM program are customer retention (by typing in the reference

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number, customer service reps can gain access to detailed information regarding specific customers’ past

purchase history, preferences in colours, brands and sizes and other relevant information) and cross

selling (as customers’ past purchase history become readily available, the company advocates its

customer reps to play the fashion consultant roles and “suggest” actively other items that may appeal to

the customer). Not only will that increase the purchase amount per customer order, it can also build a

strong rapport with the customers that will enhance further sales and the spread of the company name

through word-of-mouth. Since the word-of-mouth effect is of utmost importance in the industry, BlueFly

aims to provide the best individualized customer services and ensure customers get the quickest response

possible. The company’s first line of “defence” is scripted responses compiled by the production team for

the most commonly asked questions. If there is an expected surge in customers that demand real-time

help in peak seasons, the company can readily divert resources to handle all the incoming phone inquiries.

They compare various metrics like response times, return rates with other companies frequently in order

to push for constant improvements.

The main problems they face are: excess information and capturing meaningful information. The

company differentiates itself from competitors by the effective use of its proprietary database. In an

effort to maintain its competitive advantage, it conducts its data-mining in-house. Out of its 90 people

staff in New York, 20 of them are dedicated exclusively to its IT system. With the rapid expansion of its

customer base, the company is struggling to find time in analyzing the data collected and to perform due

diligence. As a result, the direct contribution of the CRM becomes extremely hard to quantify as the time

lag between the data collection and processing phrases significantly dilutes the relevancy of the

information generated. After all, fashion is a highly time sensitive commodity and trends are utterly

unpredictable.

In order to capture the most benefits from the first-timer promotions, some customers would register with

more than 1 email address by fabricating personal information. The CRM system in use should be

capable of deciphering junk data from meaningful customer information. Direct targeted marketing will

be effective only if the company stop investing any further in “one-time wonders” that purchased a lot at

the first time to maximise savings but never come back.

Luxury goods and premium brands in consumer goods discovered recently the power of ambassadorship.

They focus their attention on this or integrate specific activities in the CRM program. Consumer funnel is

used to showcase CRM integration in marketing activities.

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advertising promotions CRM

Main objectives of CRM are towards generating cross-selling, increasing loyalty and generating

ambassadors (consumers who recommend the brand). CRM focuses more on the brand interaction than on

purchase, actually they insist on calling the program “customer engagement program” or “consumer

dialogue” in order to underline its key goals and differentiate it from historically unsuccessful CRM

initiative. Customer value is computed considering its propagation power (word-of mouth, promoting

brand), the strength of relationship to the brand (attitude and behavior) and status value (VIP customers

could be used as badge for the brand even if not profitable in real money terms). CRM aims at integrating

all consumer touch points and it is perfectly in line with brand communication and other brand activities.

They do not calculate ROI and use as evaluation criteria: the interaction success rate (data base entry,

number of participants in activities), consumer funnel ratios (purchase to loyal, one variant purchase to

cross-selling, loyal to ambassadors) and brand image / attitude indicators.

2. CRM for Lancome Canada

2.1 Challenging the assumption

Lancôme’s concerns are especially related to promotions: GWP reduce the premiumness of the brand,

they are offered by all competitors so that not only they don’t offer any point of difference but also create

an opportunistic program-seeker behavior and their cost skyrocketed. CRM is one solution to these

problems as it can replace GWP, build image and loyalty and reduce cost. The issue might be that CRM is

perceived as an alternative to GWP and then the scope of the initiative is too narrow and has a too short

timeframe for evaluation. As we saw in BMW example, it is critical for the success of the CRM initiative

that it is perceived as an integrated function of marketing, just as brand management, and not as an

activity, a system or a limited timeframe program. Another issue is that by stressing the cost saving

objective, there is a pressure on providing short term financial evidence and thus the ROI model. We do

not believe the ROI model is a good measure of the CRM program impact on the brand profitability

consideration purchase loyal ambassadoawareness consideration trial purchase loyal ambassadors

trial purchase loyal

CRM

Cross-sales

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because it doesn’t input long-term cost savings, enhanced brand equity, attitude loyalty, WOM and

network externalities effect which all contribute to increase profitability but are very difficult to measure.

The ROI model can be adjusted to consider all these and build a strong case for implementing the CRM

but it wouldn’t be very accurate.

GWP program downsides are not completely included in the evaluation. This might impact the evaluation

of the CRM as a way of moving away from GWP:

- the strong media support behind GWP shift resources and focus from image building and new product

launches advertising

- GWP leads to delayed purchase in 25% of cases which means lower consumption, risk of using

competition products or even replace with a competitor who offer GWP - 7%.

- GWP takes away the premiumness of the brand

- Some of the products in the bag can turn down customers (wrong colors, skin type, functionality)

- If products are not used it is bad for the brand equity

- We do not have any information on what actually happen after the program – how many of the

consumer entering GWP purchased any of the products sampled, how did they increased value spent

with Lancome in time

Other areas of concern for Lancome might be: competition moves into CRM, increased dependence on

Department Stores and finding a point of difference versus competitor brands. These are all relevant

concerns but although acknowledged, they seams not to be input in designing the program.

CRM is building momentum within L’Oreal Group as the CRM initiatives proved to be successful (for

L’Oreal in France and China, for Lancome in France). The risk here is to try to copy solutions and not try

to identify the right issue and find the best fit solution.

3. Objectives

3.1 Translating business goals in CRM objectives

In setting the CRM objectives it is very important to have a bottom-up approach: start from the

profitability equation and identify upwards the most effective levers for each business goal. These levers

are used to achieve the business objectives and can be expressed in terms of CRM specific objectives.

These objectives will be made measurable and specific through the use of key performance indicators

(KPI). KPI will be used to set the objectives, evaluate and adjust the program.

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Profitability = Price x Quantity – Cost

Business Goals

Levers

Increase customer base

Increase revenues from existing customers

Reduce marketing costs (contact, GWP)

Cross selling + ++ + Loyalty ++ +

Retention + + Customer

Satisfaction + +

Ambassadorship ++ ++ McKinsey CRM study adjusted for Lancome

Lancôme CRM stated objectives Our view of Lancome CRM objectives

1. Solution for strengthening relationship with

Department Stores through loyalty

2. Reducing marketing cost (especially GWP)

3. Enhancing customer knowledge and adjusting

the offer

1. Loyalty is very important but it should be directed

to the brand and not to the program

2. This is a business objective which should be

translated in CRM objectives (see above)

3. This is the critical CRM tool which should be

used to reach its objectives

Our proposal for Lancôme CRM objectives

The three objectives we recommend 1) Cross selling; 2) Loyalty and 3) Ambassadorship will work best

towards achieving business goals such as reducing costs and increasing revenues from existing customers.

As we learnt from the premium consumer goods example, these are the main areas that CRM can impact

on. Although it can also contribute to increasing customer base, there are other marketing programs more

efficient towards this goal. If we look at the customer level, these two goals are an easier to assess and use

break-up of “maximizing customer lifetime value”.

Cross selling

This objective is the one Lancome currently focus, is in line with maximizing customer lifetime value and

it is easy to act on and evaluate. It refers to entice current customers to try or / and purchase Lancome

products from other categories than the ones they are currently using.

KPI

- conversion rate

- cost of contact

- no of brands purchased per person

- share of pocket

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Loyalty

We aim at increasing the behavioral loyalty towards the brand – the inclination of the customers to

purchase only from Lancome, to use more of Lancome products, to buy into the new product offers, to

initiate interaction with the brand thus reducing the cost to contact, to stay with the brand in spite of the

competitors’ promotions and discounts.

KPI

- frequency of purchase

- decrease of alternative brands usage

- participation rate in the loyalty program

- drop rate after the GWP program change

Ambassadorship

The absolute positive attitude toward the brand is expressed through consumers’ recommendation of the

brand to their friends. According to a research paper by Bain expert Fred Reichheld, this is the one most

important number for predicting companies’ future growth. The number of customers who would

recommend the brand to their friends reflects on one hand the attitude loyalty of current customers and on

the other hand the number of future, low acquisition cost customers. Current customers recommending

the brand are emotionally attached to the brand and would be willing to incur sacrifices / cost such as

paying a premium or forego GWP to continue using the products.

KPI

- members get members within the CRM programs

- programs such as gift for friends, “send to a friend” from web page

- source channel indicated by new members

4. CRM Implementation

4.1 Segmentation

Designing the right segmentation is key to a successful CRM program. It should be easy to define,

relevant to the brand, in line with CRM objectives, actionable and easy to track & measure.

Lancome Segmentation Our view of Lancome Segmentation

Profitability / Loyalty This segmentation is difficult to perform because profitability is very

difficult to evaluate and might not even be very relevant:

- it doesn’t consider CLV

- they do not have information on how much consumers spend on

competitor brands

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- using income is difficult and might not be highly correlated to

customer profitability

This segmentation is not actionable because Lancome doesn’t intend

to target only ++ customers

Traditional / Evolutive This segmentation is based on the channel of interaction and will be

mainly used for designing the communication for the activities within

the CRM.

Our proposal for Lancome Segmentation

Lancome can conduct its segmentation after the CRM pilot program is aired. This is because they have

limited data about consumers so far and the data they have is not very relevant in the context of the CRM

objectives. We would set some assumptions for the segmentation and test these assumptions during the

pilot run and fine-tune it accordingly.

The segmentation can be run on two dimensions: value driver for the purchase and brand disposition. The

idea is to limit the scale of the two dimensions to the very basic ones and make it very simple, actionable

and perfectly in line with CRM objective and plan.

Brand disposition

Value Drivers Occasional Loyal Ambassador

Program GWP seekers Program loyals Program promoters

Functional / product Product driven Product loyals Product promoters

Prestige / brand Fashion driven Brand loyal Brand ambassadors

Note: these segments are for exemplification only

The idea is to start from the assumption that these segments exist and identify which are the target ones.

By designing the program to appeal to those segment, there will be a self-selection of the customers. In

the same time, the initial assumption is continuously tested and can be adjusted.

The basic idea of self-selection is to reverse the roles of the company and its customers: instead of trying

to find the high potential / low loyalty people, Lancome could decide what segments it wants to reach,

design activities for those segments and let the customer find their best fit. Self selection can be done

through different offers: GWP, loyalty schemes, events, throwing the tools and let consumers choose their

preferred ones. There are companies in all industries doing this: ie price discrimination in airlines

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(Saturday night stay, departure time, planning time) or size, brand variation in packaged consumer goods.

4.2 Implementation

In order to achieve their objective Lancôme plan is to:

1. Run a test to evaluate the benefit of CRM for Lancôme (ROI, market segmentation and predictive

model for consumer segments)

2. Roll-out of the project across the country if the result of the test are conclusive

The test objectives are to:

1. Gets relevant and consistent data concerning Lancôme customers along the customer

segmentation Lancôme is trying to construct:

a. 1000 women qualified as “Evolutive”

b. 1000 women qualified as “Traditional”

c. 1000 women using as a reference point

2. Implement the CRM experiment on 1 or 2 points of sale with 1 distributor

3. Use an distributor independent solution

4. Run the test over a 1 year period

In contrast others luxury cosmetics company are using different programs.

Program 1: Do not believe right now in predictive model base on consumer’s characteristics. Only

implement CRM to increase sale (return about asia operation). Program based on point and exclusive

event but with few customization

Program 2: Build from the beginning a strong relation with the customer (questionnaire are

present in every products) nevertheless the company has not develop strong IT infrastructure to analyze

and exploit the data.

Key success factors and industry comparisons

After reviewing articles concerning CRM program, we have concluded that the following elements are

critical to any CRM implementation in terms of technical and process approach:

1. End user-driven methodology

2. Appropriate executive sponsorship

3. Cultural preparation: The Company needed to have a customer oriented mindset otherwise the

CRM program would not yield the desire ROI.

4. Appropriate design approach and program objectives definition

5. Pragmatism and simplicity for the application and the functionality

6. Strong IT infrastructure

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The strategic issues which should be considered when going from objectives to designing the program

and implementation are: loyalty to the brand not to the program; maximizing the reward value of the

program, influence re-purchase by addressing each stage of the interaction process; build a sustainable

competitive advantage through the CRM program; discriminate between segments without alienating

current consumers.

Loyalty to the brand

There is a risk that even if there is apparently loyalty reflected in increased sales and cross-selling, this

loyalty is towards the program (deal loyalty)and not the brand. This means that as soon as the program

will finish they are willing to switch, or even more extreme, they get used to the rewards program and

will be hunting them all the time (i.e. GWP for some of the switchers). The effective loyalty program

should attempt to build the loyalty towards the brand. This can be achieved when the reward scheme

explicitly support the value proposition of the brand. This has to go down to the main benefits the brand

offer and should discriminate between different segments according to the different value drivers in each

segment. For example, for the functional benefit seekers, offering Lancome products as rewards can

enhance loyalty to the brand while for status users the free products can down-grade the brand image. For

the later ones, in order to increase loyalty, the reward scheme should be tailored to support the prestige

value proposition.

Maximizing the reward value of the program

According to the cognitive learning theories, there are certain elements which contribute to increasing the

program value (O’Brien and Jones): (1) cash value of the reward, (2) range of choices for the reward, (3)

the aspirational value for the reward, (4) perceived likelihood of achieving it, (5) the scheme’s ease of

use. To these we can add the “status” value of being a member of the program, especially relevant for the

multi-level reward and prestige brands. Another important psychological element is timing; delayed

rewards are less powerful, one way to overcome this downside of the long-run loyalty programs is

through constantly reminding the participants (sending them statements of accumulated points or

reminders of the choices they have).

Repurchase

The CRM program should consider each stage of the brand-consumer interaction: pre-purchase, purchase

and post-purchase - usage. The marketers who focus more on the pre and purchase stages very often

forget the later. Cosmetics is closer to the experience products category (although some products have

also elements of a credence or research goods) and therefore the usage experience is very important for

the interaction and has a high impact on the re-purchase. Thus, Lancome should 1) track the purchase

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history of consumers to identify possible usage patterns; 2) incentive consumers to use the products once

purchased and used them correctly; 3) reinforce the brand image after purchase.

Sustainable competitive advantage

If the program can be easily copied, thus not providing any differentiation point for the company, the

CRM investment can prove to be value destroying for the industry (just as GWP). The program should be

thought so that 1) creates value for the customers and allows for value capture, 2) creates a sustainable

competitive advantage or 3) lock the customers in, thus making it difficult for competitors for steel them

even if the program is easy to copy.

Segments Discrimination

There is a trade-off between positively discriminating highly profitable customers (heavy users) and the

risk of alienating the light users. The later should be provided the chance to buy cross-category or

increase consumption with time. Also, the program should be designed so that the heavy user loyal

customers can still bring value in – through giving them tools for ambassadorship and generating word of

mouth. Cosmetics are products women love to talk about and they should be given the tools to focus this

natural disposition on Lancome brand and bring in a positive attitude. Some of the WOM tools can be:

expertise, expert insights, exclusive information services (make-up for special events), and events

participation.

Our proposed implementation plan

In our opinion the Lancôme execution plan seems to have great chances to succeed. However, we do have

some questions or suggestions Lancôme might consider while implementing the project.

Test experiment and Market penetration

According to the data provide by Lancôme concerning the market penetration, usage and buying habits in

Canada, it is clear that there is a distinction between Quebec and the rest of the Canada (see App 3). We

recommend then to run the CRM pilot in 2 specifics locations (Canada and Quebec) in order to quantify

this difference and insure that the future decision will not be unbiased.

Technology, Brand image and pilot

When you consider Lancôme consumer’s profile, you realize that the average age is 42 with an average

income of 47K. We then as a group question whether the target population was proficient with internet

and whether this type of communication. Moreover, we ask ourselves if this medium of communication

was compatible with the brand Image and luxury product. However the question must remain open as we

were able to study the brand Identity and brand Image in Canada and evaluate the impact of technology

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on the brand perception. Moreover, this question might also have a strong impact on the project cost

because but implementing a less technological project could reduce the operation cost for the project.

Implementation of the event

Lancôme plan to run sequential event and test the result of the each promotion on the target population

(see App4 for the Implementation Plan). We believe Lancôme could enhanced his CRM pilot and learn

event more on his customers behavior and the way to target them by sub-segmenting and run different test

on them. So for example, for the “Traditional” segment, Lancôme could send the first invitation for the

Perfume event and for the other half for the Make-up event and later the reverse. By this means Lancôme

could understand the buying pass of his customers. Such experiments will able Lancôme to best target the

event strategy in order to maximize sell and cross-selling.

Data collection

As explain earlier, Lancôme is very ambitious for his program and plan to collect an enormous and

heterogeneous amount of data.

1. Consumption data at the product level

2. Declarative data tracking loyalty, competitor products usage

3. Physical characteristics (hair color, style,…)

4. Data on specific marketing actions

We tend to believe that this program might be too ambitious to move from a mass market on luxury

market to a complete One-to-One relation.

We would suggest a step by step approach. As the pilot objectives are to evaluate the program and

estimate a possible ROI of a global CRM initiative, we would suggest to defer the collection of ‘personal

characteristics’ and ‘declarative data’ for the next step of the program and just concentrating on products

and events tracking to evaluate the $ impact of the program. If there is an impact, then the CRM manager

would investigate the reason why.

Project organization

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For the CRM project, Lancôme plan to outsource the management of the CRM project of the media

agency. We believe that CRM is another way to think of the business and to have a customer centric

approach (see App 5 for our recommended project structure).

5. Evaluation

Calculating ROI

We will define the ROI of a CRM project as the ratio between the present value of all the costs

involved (directly or indirectly) in the project, and the present value of positive cash flows (ie:

incremental sales) brought by this initiative. This may be considered a non-sense by financial

accounting purists since we are considering operating costs as investments. With this definition

in mind, we can start splitting these aggregates to figure out what levers will be impacted by our

CRM project (see App 7). The number of different levers, as well as the fact that their might be

some overlaps, contribute to make forecasting the ROI of a CRM project a difficult task. In fact,

empirical data show that most CRM ROI forecasts appear to be far from accurate (1). These

factors also prevent us from using “comparable” data from other projects.

In fact, the approach followed by Lancôme Canada appears to be the only reasonable: test and

learn. By conducting a test on a small perimeter, Lancôme will be able to learn from this

experience what impact can be obtained through a CRM approach. There are however some

elements that must be taken into account in order to achieve the best possible outcome.

Define clear goals

Before setting a CRM project, one must have a clear goal in mind. This goal may be to increase

the customer’s WTP (and therefore the price of the product) by leveraging a brand, and the

perceptions associated with it. It can also be to increase cross selling or the number of products

bought in the same category by an average customer. On the cost side, one goal of CRM project

can be to decrease acquisition costs for new customers, or retention costs. Once the goal is

defined, it is straightforward to find the KPI associated with it, and to dissect and track its

contribution to the ROI of the project.

In the case of Lancôme, this preparatory phase does not seem to have been totaly followed. As a

result, the ROI model is somewhat unclear. It compares the contribution of a sale conducted

through “MR” (“Relational Marketing”) to one through “GWP” (“Gift With Purchase”). Since

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the CRM project at Lancôme is quite broad, with many different mailings (product launch

mailing, event mailing, birthday mailing) and phone calls, it seems likely that other aspects of

our ROI equation will also be impacted: there is a chance that customers targeted by CRM will

be more loyal, their retention will be higher than average, etc… Those elements are not tracked

in Lancôme’s ROI model (see App 5 for the actual model).

Track only incremental contribution

One of the difficult aspects in calculating (ex-post) the ROI of a CRM project is that in many

cases it is very difficult, or even impossible, to really separate the effect of CRM on a specific

KPI from the noise of a normal evolution. Once again, having a control sample of customers that

will not be impacted by the CRM approach is a good way of splitting the effects, and Lancôme

will have the chance to have two clearly separated populations: a test sample of 2000 Lancôme

customers that will participate to the CRM program and a control sample of another 1000

customers. In Lancôme’s ROI model the notion of “incremental contribution” does not seem to

be taken into account. For example, at least part of the sales brought by GWP campaigns would

have been done anyway as seems to indicate Lancôme GWP study (14% of people who bought

through GWP didn’t know about it and had planned to buy from Lancôme anyway), or may be

just shifted in time. For the “MR” campaigns, the same issue occurs: some of the customers that

purchased after having received a “MR” mailing would have purchased it anyway. The only way

to figure out a good estimate of the incremental impact of CRM operations will be to use the

control sample.

Other issues

When we try to calculate the ROI on a CRM project, it is important to have in mind that what we

try to maximize is the lifetime profitability of customers. Therefore it may be difficult to base

our decisions on tests running on relatively short periods of time.

Intangible benefits of CRM project are numerous: better understanding of clients, improved

customer satisfaction, support the premium image of the brand. Their impact is called

“intangible” because it is virtually impossible to measure. It is therefore much more appropriate

to follow specific indicators in order to track these important aspects of a CRM approach.

The CRM test at Lancôme will be conducted over 1 or 2 department stores. Some of the

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purchases of our test and control sample clients will therefore escape the tracking (while

purchasing Lancôme products in other stores). In fact, since the clients receiving CRM targeted

mailings are invited to come back to the stores involved in the program, the results obtained from

the test samples may appear inflated compared to the control sample that is not incentivized to

come back to the same store. This effect should be corrected.

Our proposed evaluation model

In our proposed ROI model, we tried to include all the information available from Lancôme.

This remains however a pure example of what could be done ex-post, since there is no

satisfactory way to figure out what will be the real impact of CRM operations on our two test

populations, on items such as “number of products per purchase” or “number of purchases per

year”. Our purpose in this ROI model is to be sure that all the impact of the CRM campaign will

be measured (at least over 1 year) and not only the immediate result to a mailing campaign.

We would include sensitivity considerations regarding: timeliness - long term value vs three years

evaluation -, measure WOM and ambassadorship, competitors’ data to measure migration, improvement

in brand image and consideration.

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APPENDIX 1: Check list for CRM

1. Establish corporate needs. Identify its problems. Identify the solution to that problem.

Decide how to implement the solution.

2. Talk to customers and staff and ensure staffs are willing to accept it. Change from

product-focus to customer-focus. Build long-term, mutually beneficial relationships with

all stakeholders.

3. Encourage inter-departmental communication and corporate-wide support. Appoint a

chief customer officer and a CRM project team.

4. Define clear, measurable business objectives for each phase, limiting investment while

monitoring ROI.

5. Break general goals into narrow specifics so progress can be monitored.

6. Benchmark customer satisfaction pre-implementation. Learn from campaign mistakes

and successes to aid future improvements.

7. Choose a scalable product with:

(a) Technology that facilitates monitoring of marketing campaigns;

(b) CRM architecture that can handle existing and future sales channels.

8. Integrate front-end systems with back-office data mining processes for one view of the

customer. Use only the relevant data for your business issue. Supplement data where

required.

9. Establish a central data warehouse for new and old data. Data mine and analyze it. Create

different data models for your solution. Standardize your data format to reduce extraction

complications. Use only highest-quality data. USE THE AVAILABLE DATA!

10. Automate the decision-making process. Monitor variances in customer behavior with

intelligent Agents to predict key customer events.

11. Use cluster analysis to discover new customer insights. Promote customer retention

through predictive modeling.

12. Build, test and apply analytic models.

13. Trigger behavioral change for more profitable marketing campaigns with an event

service.

14. Deliver customized customer service.

19

APPENDIX 2: Lancome CRM test process

Lancôme expects to collect 4 types of data during the program:

1. Consumption data at the product level

2. Declarative data tracking loyalty, competitor products usage

3. Physical characteristics (hair color, style,…)

4. Data on specific marketing actions

The overall process for the test experiment will be the following:

BA

Lancôme Counter

BA

Lancôme Counter

CustomerContextServer

Business Intelligence

My LancômeDatabase

Update Data Card



My LancômeDatabase

Update Data Card

Triggered Email: Thank you for joining MyLancôme. To modify your profile and see application videos ofyour recently purchasedproducts.Click here

AutomaticFollow-up Email

Triggered Email: Thank you for joining MyLancôme. To modify your profile and see application videos ofyour recently purchasedproducts.Click here

AutomaticFollow-up Email

Customer ReceivesWelcome Pack

Welcome Pack

Customer ReceivesWelcome Pack

Welcome Pack

Update

Update

Online Mail

Update

Update

Update

Update

Online MailOnline Mail

BA enters profile

Mrs O’Connor 48 Wexford Blvd Toronto, Ontario, M1R 1L3

Dear Mrs. O’Connor,

As a valued My Lancôme member, Lancôme would like to offer you an exclusive complimentary travel size* of Miracle perfume on this coming Mother`s Day.

Simply present this postcard at your closest Lancôme counter at XXX The Bay before March 15th, 2002, to receive your special Mother’s Day gift.

Bring a friend along and we will pamper her with a sample trio as well!

Kind Regards,

Catherine Florentin *while quantities last, one trio per person

Simply present this postcard at your closest Lancôme counter at XX The Bay before March15th, 2002, to receive your special Mother’s Day gift.

Bar code always consists of the following information in order to track client behaviour:

[Customer Code] + [Channel Code] + [Promo Code]

Lancôme.ca

Triggered Email: « Discover application videos andtips on your recently purchasedproducts » Click here

AutomaticFollow-up

Lancôme.ca


AutomaticFollow-up


AutomaticFollow-up

Update

Update

Update

Update

Update

Update

Mailer

Encart

Media sources withunique bar codes

Email

Lancôme Counter

Personalized and targetedcommunication

My Lancôme Member

Drive to StoreMailer

Encart


Email

Mailer

Encart


Email

Lancôme Counter


My Lancôme Member

Drive to Store

Lancôme Counter


My Lancôme Member

Drive to Store

Lancôme Counter


My Lancôme Member

Drive to Store


My Lancôme Member


My Lancôme Member

Drive to Store



DATA CARD

Name: Sue O’Connor

Skin Type: Dry

Campaigns:Juicy Tubes Juicy Cocktail Miracle Sample

Campaign: My LancômeSource: Mailer

BRAND VALUE CUSTOMER VALUE



DATA CARD


Skin Type: Dry





DATA CARD


Skin Type: Dry





DATA CARD


Skin Type: Dry



BRAND VALUE CUSTOMER VALUE

My LancômeDatabase

Update Data Card

BA

My LancômeDatabase

Update Data Card

BA

My LancômeDatabase

Update Data Card

BA

The program plans to mix on-line and off-line action with specific tracking and impact on each

action on the consumer consumption and return rate.

The program will capitalize on the Beauty assistants (paid by Lancôme and the distributor) on the

counter to collect data and deliver custom service. They will play a key role in the success in the

operation and for this reason Lancôme plans to have a specific reward system to encourage them

to participate in the initiative.

20

APPENDIX 3: Regional consumer data

APPENDIX 3: Implementation Plan

8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4

IMPLEMENTATIONREPORTING

ROI

DECISION

OFF lineQualification via WP

Mailing 1 : Welcôme PackMailing 2 : Perfume event

Call from BAEvent

Mailing 3 : mailing product launchMailing 4 : mailing product launch

Mailing 5 : Make up EventCall from BA

Make up eventMailing 6 : Birthday mailing

Mailing product

Mailing event

On going action

Total Canada

%

Quebec

%

English Canada

%

United

States

%

Base: ( ) = 100% 2001

(803)

2003

(800)

2001

(201)

2003

(200)

2001

(602)

2003

(600)

2001

(1002)

At least one brand

mentioned

79 87 94 ⊕ 95 ⊕ 75 ⋅ 85 66 ⋅

Clinique 27 32 22 23 ⋅ 29 35 37 ⊕

Estée Lauder 26 27 21 26 28 27 38 ⊕

Lancôme 23 27 42 ⊕ 45 ⊕ 16 ⋅ 20 ⋅ 18 ⋅

Chanel 23 23 24 26 23 23 17 ⋅

Biotherm 18 19 35 ⊕ 37 ⊕ 12 ⋅ 13 ⋅ 3 ⋅

Average # of Brands

Used*

2.5 3.0 3.1 3.8 2.4 2.7 2.6

21

APPENDIX 5: Our proposal for the organization structure

If Lancôme walk this pass, it is critical for Lancôme to keep those competencies in house to be

able to create a competitive advantage over his competitor using CRM.We suggest then that

Lancôme assign an internal project leader on top of the project sponsor (marketing director) who

could drive the program and adjust it if necessary. The ideal management structure would be the

following:

22

APPENDIX 6: Lancome current ROI model

AN1 Coût nombre d'envoi Coût unitaire Taux de retour Ventes

Nb de produits par

vente Coût par vente Panier moyen CAMarge brute d'exploitation

Rentabilité brute Connaissance Loyauté

MR 294 000 $ 45000 6,5 $ 8100 4050 1,5 73 $ 45 $ 273 375 $ (20 625) $ négative Totale ElevéeGWP 10 700 000 $ 1100000 1 10 $ 30 $ 33 000 000 $ 22 300 000 $ 68% 0 Faible

50%

AN2 Coût nombre d'envoi Coût unitaire Taux de retour VentesNb de produit

par vente Coût par vente Panier moyen CA Marge brute d'exploitation


MR 500 000 $ 450000 1,1 $ 72000 38025 1,2 13 $ 45 $ 2 053 350 $ 1 553 350 $ 76% Avancée ElevéeGWP 10 700 000 $ 1100000 1 10 $ 30 $ 33 000 000 $ 22 300 000 $ 68% 0 Faible

12% de rentabilité en plus entre GWP et MR 30%

50% des clients s'additionnent avec ceux de l'année 1

AN3 Coût nombre d'envoi Coût unitaire Taux de retour Ventes

Nb de produits par

vente Coût par vente Panier moyen CA Marge brute d'exploitation


MR 500 000 $ 450000 1,1 81000 59513 1,2 8 45 3 213 675 $ 2 713 675 $ 84% Avancée ElevéeGWP 10 700 000 $ 1100000 1 10 30 33 000 000 $ 22 300 000 $ 68% 0 Faible

23% de rentabilité en plus entre GWP et MR

30% des clients s'additionnent avec ceux de l'année 2

APPENDIX 7: Our proposed CRM evaluation model

ROI

Price

Quantity

Costs Acquisition

Retention

Repeat purchase

Cross selling

Fidelity

Brand

x

=

Actionnable Levers

23

References

Adopting customer relationship management technology (Yurong Xu, David C. Yen , Binshan

Lin, David C. Chou)

Understanding customer relationship management (CRM) (Injazz J. Chen, Karen Popovich)

Customer relationship management systems: implementation risks and relationship dynamics (Ian

Corner, Matthew Hinton)

Dowling and Uncles - Sloan Management Review, 1997

Fred Reichheld – Harvard Business Review, 2003

Interviews with companies: Dior, Sony, British American Tobacco

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